Shinn v. Thrust IV, Inc.

Washington Court of Appeals · 1990 · Corporations

786 P.2d 285 (1990)

Updated August 22, 2026

CorporationsLimited partnershipsBusiness judgment ruleMarketable titleSecurities regulationgeneral partnerlimited partnershipfiduciary duty

Facts

The Shinns and Thrust formed a limited partnership to develop and sell a house on lot 1, with the Shinns contributing their equity in the lot and Thrust serving as general partner responsible for financing, construction, and sale. The trial court found Thrust failed to timely and workmanlike manage the project, negligently supervised foundation subcontractors, failed to control costs, and allowed the Shinns' capital account to be diluted. Separately, the parties entered a purchase and sale agreement for lot 2, but a title report disclosed plat restrictions and replat defects that created uncertainty about where a house could legally be built and exposed the buyer to possible litigation. Thrust refused to close, claiming title was unmarketable, while the Shinns argued Thrust had waived objections and later sued for breach and related claims.

Issue

Whether Thrust was protected by the business judgment rule from liability as general partner for its management of the lot 1 project, whether the damages award on that claim was adequately supported, whether Thrust breached the lot 2 purchase and sale agreement despite the title defects, and whether the transaction supported a claim under the Washington securities act.

Rule

In Washington, the business judgment rule does not protect conduct that fails to satisfy due care, skill, and diligence, and the court will not apply the rule to a general partner where the partnership agreement imposes specific contractual duties that were breached. A waiver is the intentional relinquishment of a known right, and an addendum removing contingencies waives only the contingencies identified in the contract. Title is marketable only if it is free from reasonable doubt and from known facts that create a reasonable probability of litigation; where one party had exclusive control over the project and superior knowledge of the causes of losses, that party bears the burden of segregating damages.

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In Portland, Olivia Park and Daniel Ruiz contributed land to a limited partnership to develop a duplex, while Cascadia Crest Development, Inc. served as sole general partner. The agreement required the general partner to use its best efforts to complete construction in a timely and workmanlike manner, but the general partner ignored repeated warnings that drainage work had to be finished before winter rains and then failed to monitor the site, leading to major avoidable damage.

If Olivia and Daniel sue the general partner for breach of the partnership agreement and fiduciary duty, the general partner's strongest defense is that it acted honestly and in good faith. How should a court rule?

Explanation. The majority declined to apply the business judgment rule where the general partner failed to use proper care, skill, and diligence and also breached express duties in the partnership agreement. Good faith alone is insufficient. When the agreement separately requires best efforts, timely performance, or workmanlike construction, those contractual duties stand apart from any generalized business-judgment protection.