Opinion ID: 1192010
Heading Depth: 1
Heading Rank: 22

Heading: An Example.

Text: An example will demonstrate how absurd it is to argue, much less to conclude, that the present facts do not create a separate duty in tort. Assume that a major developer in Boise desired to construct and sell a ten story office building. The developer could not obtain financing for the project unless and until he obtained and delivered to the lending institution leases covering 80% of the space in the building. The developer has a purchaser who has committed to purchase the building, once constructed, if, but only if, the developer has in place good leases covering eight of the ten floors in the building. The lender will not commit to the loan until it knows that the rental income from the building will be sufficient to insure that the loan will be repaid. The buyer will not commit to purchase the building until he knows he will have sufficient rental income guaranteed in order to service his debt. The developer can construct the building for $10 million and can sell it to the buyer for $12 million  if the developer can secure the leases covering eight of the ten floors. Assume further that the developer has received an assurance from an out-of-state major business that it will commit in the future to lease eight floors, but that it cannot sign the appropriate lease for 90 days. Interest rates are rising, however, and the developer wants to obtain the lender's commitment for financing now  before the increase occurs. The developer therefore meets with two substantial firms in Boise, explains his predicament to them, and asks each of them to sign a lease covering four floors in the building. He assures each that the out-of-state tenant will lease the eight floors in 90 days, that neither of the Boise firms will be obligated under the leases, and that he just needs to use their two leases in order to obtain the necessary financing and to conclude the sale of the building to the prospective buyer. Both of the Boise firms trust the developer, believe him and want to help him, so each signs a multi-year lease covering four floors of rental space in the building. Neither of the Boise firms intends to be obligated under the leases, and each fully expects the out-of-state firm to sign a lease 90 days later covering the eight floors. The two Boise firms sign the leases and deliver them to the developer, knowing that that the developer will use them to induce the bank to finance construction of the building and to induce the buyer to purchase same. Neither the developer nor either of the two Boise firms informs the bank or the buyer of the true state of the facts. Relying on these leases, the bank loans the $10 million and the buyer signs a contract to purchase the building for $12 million. The out-of-state business which had indicated it would lease eight floors in the building fails to do so, and the two Boise firms advise the bank and the buyer that the leases they signed were only straw leases to be used by the developer to obtain financing and sell the building, and that they never intended to be obligated under the leases. Under existing Idaho law, is the only recourse for the bank or the buyer to sue under the leases for breach of contract? Do the two Boise firms who signed these straw leases, each having no intent to be bound under same, owe any duty in tort to the buyer? Do the two Boise firms owe a duty to disclose to the bank and the buyer facts which were known only to them and the developer and which they knew to be necessary in order to prevent the leases from misleading both the bank and the buyer? The answers to these questions appeared to be obvious prior to the latest opinion in this case. It is submitted that no bank or buyer involved in a fact situation as presented above would elect to sue on the straw leases. Until this opinion, it is submitted, no attorney practicing law in Idaho would advise his client to sue on the leases  much less advise his client that no duty in tort existed to disclose such facts. Negligent nondisclosure and constructive fraud, as enunciated in Bethlahmy and Tusch, apply. Just as obviously, the same principles are applicable to, and should be dispositive of, the fact situation in the present case.