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Schmidt v. Cornerstone Investments Inc.8/23/1990
In late 1982, Zeta Corporation, through its principal, defendant C.E. Austin, became interested in purchasing a piece of commercial property in Burien, Washington, known as the "Bargain Boys" property. The owner of the property was in bankruptcy, and negotiations for the sale were made through the bankruptcy trustee. In connection with the sale, the bankruptcy court was presented with two separate appraisals of Bargain Boys. One completed in June 1982 valued the property at $154,700. A July 1982 appraisal valued the property at $120,000. At the time of these appraisals, the property was in disrepair and required extensive remodeling. The bankruptcy court entered an order authorizing the sale to Zeta for a purchase price of $150,000. By this time, Zeta had formed a partnership with Grand Investments Company in order to finance the purchase.
In September 1982, after Zeta was given the authority to purchase the property (but before it actually had done so), defendant Austin retained the appraisal firm of Lamb,
Hanson, and Lamb (the appraiser) in order to obtain an opinion letter stating the probable fair market value of Bargain Boys. Austin told the appraiser he owned the building or that he "had an interest in it". Austin also requested the appraisal be made as if all required renovation had been completed. Following these instructions, the final appraisal, dated September 15, 1982, placed the "As Is" value of Bargain Boys at $460,000.
Also prior to the purchase by Zeta of the property for $150,000, it decided to sell the property to Cornerstone Investments for $200,000. In exchange for a warranty deed from Grand (Zeta assigned its interest in the property to Grand at the time of the purchase from the bankruptcy trustee), Cornerstone gave a promissory note for the purchase price. This transaction was largely completed without documentation through defendant Brink, an attorney who acted as escrow agent for the transaction.
In order to afford the $200,000 purchase price, Cornerstone contacted defendant Pacific Home Equity, Inc. (Pacific) and requested a second position deed of trust in the amount of $75,000. Cornerstone represented to Pacific the purpose of the second deed of trust would be to restore and repair the property. Pacific was given a copy of the $460,000 "As Is" appraisal.
On February 22, 1983, defendant Clifford B. Weiss, a sales agent for Pacific, went to the home of plaintiffs Paul and Grace Schmidt and convinced them to invest the required $75,000 in Bargain Boys. Both plaintiffs are retired and had only invested on a limited basis up to this time. Weiss told plaintiffs the property was owned by Cornerstone Investments, Inc., and that their investment would be used to repair the property. Weiss also told plaintiffs the investment would pay 20 percent interest. He also showed plaintiffs the $460,000 appraisal.
While plaintiffs were deciding whether to make the investment, Weiss informed them of Grand's first deed of trust. After assurances were made that this would not
adversely affect their investment, plaintiffs signed an escrow agreement giving Pacific the power to act as their agent for purposes of the investment. Plaintiffs also made out a check in the amount of $75,000 to Pacific. At no time did Weiss mention to plaintiffs the actual condition of the building, nor did plaintiffs make any effort to examine the property before making their final decision to invest their money.
As soon as Pacific received plaintiffs' check, it issued a $75,000 check to Brink, who acted both as escrow agent for the transaction and legal counsel for Zeta/Grand. Brink immediately made arrangements to purch
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