Washington Constr. Inc. v. Sterling Sav. Bank

Decision Date13 September 2011
Docket NumberNo. 40029-4-II,40029-4-II
CourtWashington Court of Appeals
PartiesWASHINGTON CONSTRUCTION, INC., a Washington corporation, Appellant, v. STERLING SAVINGS BANK, a Washington bank, Respondent, DAVID ALAN, LTD., a corporation; DAVID ALAN DEVELOPMENT, LLC, a foreign Limited Liability Company; DAVID A. MILNE and VIRGINIA MILNE, husband and wife and their marital community; ACTION MORTGAGE COMPANY, a Washington corporation; BURNHAM BUILDERS, LLC, a Washington Limited Liability Company; C.E.S. NW, INC., a foreign corporation; FERGUSON ENTERPRISES, INC., a Washington corporation; CALIBER CONCRETE CONSTRUCTION, INC., a Washington corporation; TUNNEL SYSTEMS, INC., a Washington corporation; N C MACHINERY CO., a Washington corporation; and EARTH CONSULTING, INC., a foreign corporation; and THE BLACKSTONE CORPORATION, a Washington corporation, Defendants.
UNPUBLISHED OPINION

Quinn-Brintnall, J.Washington Construction, Inc. (WCI), a general contractor, entered into a construction contract with an agent for David Alan Development, LLC (DAD) to perform construction work. DAD had separately contracted with Sterling Savings Bank (Sterling) for a construction loan to develop the property. The issues on appeal concern only two parties: WCI and Sterling. WCI appeals the trial court's denial of its motions to amend its complaint to add claims of assignment, negligence, negligent misrepresentation, and aiding and abetting fraud. WCI also appeals the trial court's summary judgment dismissal of its third party beneficiary, promissory estoppel, estoppel by silence or acquiescence, estoppel in pais, equitable estoppel, unjust enrichment, equitable subrogation, and tortious interference claims.

Because WCI presents genuine issues of material fact only as to its unjust enrichment claim, we reverse summary judgment dismissal of that claim and remand for further proceedings in accord with this opinion. We affirm on all other issues.

FACTS

David Alan Milne is the controlling officer or member of three Washington companies: James Alan, LLC (JAL), DAD, and David Alan, Ltd. (DAL). On May 9, 2007, JAL entered into a construction loan agreement ("Cook Agreement") with Sterling wherein Sterling agreed to lend JAL $7,535,000 to finance the acquisition and development of the "Cook Addition," a residential property in Kitsap County. The Cook Agreement contained an acceleration clause giving Sterling the option to make any outstanding loan debt "immediately due and payable" if the property should come under any lien or encumbrance not cured within 30 days. Clerk's Papers (CP) at 278.

Six months later on November 5, 2007, Sterling entered into a construction loan agreement ("Rita Estates Agreement") with DAD, another Milne company, for the acquisition and development of Rita Estates, a residential property in Pierce County. The Rita Estates Agreement provided for a $3,050,000 loan from Sterling to DAD and stated,

CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents.
Approval of Contractors, Subcontractors, and Materialmen. Lender shall have approved a list of all contractors employed in connection with the construction of the improvements. . . . Lender shall have the right to communicate with any person to verify the facts disclosed by the list or by any application for any Advance, or for any other purpose.

CP at 792. The Rita Estates loan was secured by a construction deed of trust recorded on November 13, 2007, and by a promissory note guaranteed by DAD and David and Virginia Milne, individually. As additional security, DAD and Sterling entered into an "Assignment of Plans, Contracts and Entitlements" (APCE) agreement. Under the APCE, DAD assigned to Sterling "all of its rights, powers, privileges, claims and causes of action, and all of its right, title and interest in and to and proceeds from . . . all contracts of every kind relating to the acquisition, development, construction . . . of all or any part of the Property, including, without limitation, construction contracts and subcontracts." CP at 710. The APCE grants DAD a license, immediately revoked upon DAD's default under either the APCE or Rita Estates Agreement, under which to operate and move forward with the Rita Estates project.

Sterling initially advanced $1,502,153 to DAD to acquire the Rita Estates property in November 2007. Sterling had also advanced $7,161,710 to JAL for the acquisition and development of the Cook Addition. On April 23, 2008, however, the general contractor for theCook Addition filed an $833,344.48 lien on the property and claimed to hold rights superior to Sterling's. Sterling, in accordance with the Cook Agreement, requested JAL cure the lien defect by paying its contractor within 30 days. JAL did not cure the defect.

Meanwhile, Milne appears to have suggested to Sterling a number of potential contractors to begin work on the Rita Estates development. Then, on August 19, 2008, without notice to or approval by Sterling, DAL, representing itself as DAD's agent,1 entered into a "Construction Contract for Sitework Services Between Owner and Contractor" with WCI for work on the Rita Estates project. As verification of adequate financing, Milne showed WCI an unsigned copy of the DAD-Sterling Rita Estates Agreement and an email from Sterling urging DAD to start the project quickly due to the impending rainy fall season and concerns over falling land values. The lump sum contract price was $995,554 and required WCI to begin work on August 18, 2008, the day before the parties signed the contract. The construction contract also required WCI to submit an invoice for each 30-day period of work and DAL to remit payment no later than 30 days after receiving the invoice.

Milne orally informed Sterling the following day, on August 20, about its newly-formed agreement with WCI. Sterling also received and reviewed a copy of the WCI-DAL construction contract. Sterling told Milne to cease work on the Rita Estates project because WCI had not been approved as the general contractor as required under the Rita Estates Agreement andSterling would not fund any development costs. Milne refused to stop the work, citing environmental concerns stemming from the two days of clearing work WCI had already performed.2

On August 21, nearly four months after Sterling requested JAL cure the lien defect with the Cook Addition contractor, Sterling sent a default notice to JAL, DAD, and the Milnes. Because of JAL's failure to cure the Cook Addition lien defect and to complete construction as required under the Cook Agreement, Sterling demanded immediate repayment of its $7,122,390.09 loan plus another $1,300,000 required to complete the project. Sterling then issued a notice of cessation of advances on the Rita Estates project on the basis that DAD and the Milnes, the borrower and guarantors, were in default on the Cook Agreement, which materially changed their financial condition.

Nobody notified WCI that Sterling had issued the notice of cessation of advances on August 21, 2008—two days after WCI entered into the Rita Estates construction contract and three days after it began work. Throughout the following month, WCI received repeated assurances from Milne that payment would be forthcoming. In apparent reliance on these assurances, WCI agreed to transfer a Department of Ecology permit to itself and deposited a cash bond with the City of Gig Harbor, Washington.

Unbeknownst to WCI, Sterling had repeatedly notified Milne that he must stop performance on the Rita Estates project. For example, Sterling wrote in an email to Milne dated September 8, 2008, "As I told you in our meeting, [WCI] was not approved by [Sterling] to moveforward on the site. This was a condition of the approval. I told you at our meeting that you needed to stop the work until all issues were resolved." CP at 362. To which Milne responded, "The work was already started, the site had been cleared. Once this happens, you need to move forward. Also, you seem to be playing ostrich on the fact the plat entitlements are expiring March 16th 2009. The [Rita Estates] loan has absolutely nothing to do with Cook dispute." CP at 361.

On September 19, 2008, WCI submitted its first Rita Estates project invoice for $634,939.22 (after deducting retainage) for work performed through that date. On September 18, in seeming anticipation of WCI's invoice, Milne3 appears to have attempted to resolve the Rita Estates project issues by sending the following email to Sterling:

I believe the background on Rita [Estates] is important to make a correct decision on the withdrawal of the cessation letter. As [Sterling] knows, I was reluctant to start another subdivision in this housing market. I already have three in the Kitsap Peninsula and have not sold a lot since March. However, the plat entitlement [is] going to expire in March of 2009 and with all the new regulations, who knows? We started the clearing on August 18th. By the time we received the cessation letter the site had been cleared, no storm water facilities were, or are, installed, no outlet pipe for the site, simply no way to protect the environmental concerns were in place.
However, I can't in good faith, have contractors working without a source of payment. Therefore I will stop work tomorrow on two conditions;
1) somebody from Sterling Saving will assume the responsibility on the [National Pollutant Discharge Elimination System] permit.
2) the contractor [WCI] is paid for all work to date, September 19th 2009.
The plat will still expire in March and I will expect Sterling to pay me for the damages and provide a full release on the loan, but that is not a condition (see above). I have requested the cessation letter be removed and a two party
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