Northwest Business Litigation

Washington lien claimant wins the battle but loses the war

When an owner of property subject to a lien records a lien bond, the bond becomes security for the lien and guarantees payment of a judgment upon the lien.  In an opinion issued yesterday by the Washington Court of Appeals, Division I in DBM Consulting Engineers v. United States Fidelity and Guaranty Co., plaintiff won a hollow victory and learned the hard way that in order to collect a judgment from a lien bond a judgment for foreclosure of the lien, not just breach of contract against the principal, must be obtained.

DBM recorded a mechanics lien against a client to secure a debt DBM asserted it was owned under a contract for professional services. The client obtained a lien bond to allow it to sell the property while the claim was pending.  DBM sued the client for breach of contract, unjust enrichment and foreclosure of the lien and prevailed at trial.  While DBM requested foreclosure of the lien in its complaint, it never pursued the foreclosure claim or obtained a ruling on the claim.  When the client failed to pay the judgment, DBM then sued the surety to compel it to pay DBM and the trial court found for DBM.  The Court of Appeals reversed the trial court and dismissed the suit finding that because DBM failed to obtain a judgment upon the lien the surety was not obligated to pay under the lien bond statute, RCW 60.04.161.

To add insult to injury, the Court stated in a footnote that because DBM brought a lien foreclosure claim in the original action, but in effect abandoned the claim by not obtaining a judgment on the lien, DBM would be barred by res judicata from pursuing the claim in another suit.

When is a delivery not a delivery?: Risk of loss and the UCC

Consider these facts:  A seller of manufactured homes delivers a home to the buyer's lot, but a month later, before the seller completes the finishing work inside the home and before it's ready for occupancy, a storm causes extensive damage.  Who is responsible to pay for repairs - the seller or the buyer?

In Lucas v. Berry, the Oregon Court of Appeals decided last week that the seller had to pay to repair the manufactured home because the risk of loss had not yet passed to the buyer at the time of the storm.  The parties' contract required the seller to deliver and set up the home, but didn't address when the buyer would become responsible for damage to it.  The court turned to Article 2 of the Uniform Commercial Code, governing sale of goods, for the answer.  ORS 72.5090(1)(b) states that the risk of loss passes to the buyer when the goods are duly tendered so as to enable the buyer to take delivery.  Even though the home had been delivered to the buyer's lot, it had not yet been "delivered" as that term is used in the UCC.  The seller had contracted to provide a home fully ready for occupancy, and until that happened there was no delivery to the buyer and the risk of loss remained with the seller.

Oregon Court of Appeals puts limits on the "economic loss" doctrine

The Oregon Court of Appeals this week clarified the scope of the "economic loss" doctrine, an important limitation on the type of damages recoverable for negligence.  Under Oregon's economic loss doctrine, a plaintiff cannot recover damages for purely economic losses resulting from defendant's negligence, unless the defendant owes some special duty to plaintiff beyond the common law duty to exercise reasonable care.   So, for example, an employer cannot sue a party for the loss of the services of its employee based on that party's negligent injury of the employee; in such a case, the employer suffered no injury to its person or property, so its losses are purely economic and cannot be recovered from the tortfeasor.

The issue the Court of Appeals addressed in Harris v. Suniga was how to define "economic losses."  In that case, the plaintiffs were subsequent purchasers of an apartment building, and the defendant was the builder whose negligent construction allegedly resulted in extensive dry rot.  Because plaintiffs had no contractual relationship with the builder, they could not sue for breach of contract.  Instead, they made a claim for negligence.  The defendant sought to dismiss based on the economic loss doctrine, arguing that plaintiff's loss was simply a decrease in the value of their investment and therefore was not recoverable in a negligence claim.  Judge Landau, writing for the court, disagreed.  He concluded that plaintiffs' claim was based on injury to their property and was not purely economic.  On that basis, the economic loss did not bar a negligence claim and plaintiffs are entitled to proceed against the builder.