First Citizens

8/13/2019 First Citizens

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FILEDMiR O F APPE1;. SJ f i b 1 0 r P 1 12 0 : 3 D E C - 3 A P B 9 20

INTHE COURT OF APPEALS OF THE STATE OF WASHINGTONS T A ,rE OF W A S H I N G T O NDIVISION II

E i YFIRST -CITIZENS BANK &TRUST No. 43619 -1 - IICOMPANY,

Respondents,

V.

CORNERSTONE HOMES &DEVELOPMENT, LLC, a WashingtonCorporation; and its Guarantor DANIEL L.ALLISON and JEANNEALLISON,individually and th e marital communitycomposed thereof,

PUBLISHEDOPINION

HUNT, J. Daniel L. and Jeanne Allison, guarantors of three commercial promissorynoesissued by Cornerstone Homes & Development, LLC, appeal the superior court' s judgmenton the pleadings, ordering them to pay a deficiency following a nonjudicial trustee' s sale ofCornerstone' s propertiesthat securedthe noeswthconstructiondeeds otrust. The Allisonsargue that ( 1 ) these construction deeds of trust also secured their commercial guarantyobigations; and (2) the anti-deficiency provsonsothe Washington Deed of Trust Act 'prohibit a deficiency judgment against a guarantor when, a s here, the underlying deeds of trustsecuredthe guaranty. We agree We hold that RCW 61. 24. 1 0 0 ( 10) prohibited First -CitizensBank & T r u st Compa n y from obtaining a deficiency judgment against the Al l isons because thedeeds of trust that First - itizens no n judicially foreclosed to s a tis f y C or ners t one ' underlying

Ch. 61. 24 RCW.


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First -C itizens sued guarantors the Allisons for this deficiency an d mo v e d for judg me nton the pleadings. The superior court grantedthe motion and awardedjudgment in favor of First-C itizens fo r the full deficiency amount and $ 3 1 , 370. 0 0 in attorney fees. T he Al l isons appeal.

0 1 MII. GUARANTY & DEEDS O F TRUST

T he Allisons argue that ( 1 their obligations under their guaranty were discharged whenFirst -C itizens nonjudicially foreclosed on Cornerstone' s deeds of trust, which also expresslysecured their guaranty; and ( 2 ) thus, RC W 61. 2 4 . 10 0 did no t allow First -C itizens to o bta in ajudgment a ga in st th em for the loan d efic ie nc y th at remained after the trustee' sale ofC ornerstone' s property. W e agree.

A. Standard ofReviewWe revewde novoa tria court s ordergranting judgment onthe peadngs. N. Coast

Enters., Inc. v. Factoria P'ship, 94 Wn. App. 855, 858, 974 P. 2d 1257 ( 1999). Interpretation ofa contractis a questionolaw,whchweasorevewde novo Wright v. Dave Johnson Ins., Inc.,167 Wn. App. 758, 769, 275 P.3d 339, review denied, 175 Wn.2d 1008 ( 2012). Washingtonfollows the obectivemanfestationtheory ofconracts ; our pr imary goal in interpreting acontract is to ascertanthe parties intent. Hearst Commc' ns, Inca v Seattle Times C o . , 154Wn.2d 493, 503, 115 P.3d 262 ( 2005). Th u s , w e dete rm i ne intent by focusing on the part ies 'objective manifestation of their intent in the written contract rather than on the unexpressedsubective intent ofetherparty; in oherwords, We do not interpret what was intended to be

3 First -Citizens also sued Cornerstone, but it later withdrew this action.

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wittenbut wha waswitten. Hearst, 154 Wn.2d at 503, 504 ( emphassadded) (citing J.W .Seavey H op C o rp. v. Pollock, 2 0 Wn.2 d 337 , 3 4 8 - 4 9 , 14 7 P . 2 d 310 ( 1944)).

T he rules that apply to contracts also govern interpretation an d construction of ag u a r a n t y . B e l l e v u e S q u a r e M a n a g e r s v . Granberg, 2 Wn. App. 7 6 0 , 7 6 6 , 4 6 9 P . 2 d 9 6 9 ( 1 9 7 0 ) . 4By signing a guaranty, the guarantor promises a creditor to perform if the debtor fails to repaythe loan. B & D Leasing Co. v Ager, 50 Wn. App. 299, 306, 748 P.2d, 652 ( 1988).Nevertheless,

a] guarantor is not to be held liable beyond the express terms of his or herengagement. Ifth ere is a question of meaning, the guaranty is construed againstthe party w ho d rew it up o r against the party benefited.

Matsushita Elec. Cor p. ofAm. v. Salopek, 57 W n . A p p . 2 4 2 , 2 4 6 -47, 787 P . 2 d 963, reviewdenied 114 Wn.2d 1029 ( 1990) ( emphassadded). Here, it is undisputed that Venture Bank

drafted the Allisons' commercial guaranty and Cornerstone' s deeds of trust.B. C ornerstone' s D e e d s of Trust S e c u re d t he Allisons' Guaranty

First -Citizens argues that th e deeds of trust. s e cu r in g C o r ne rs to n e' s promissory notes toVenture Bank did not secure th e Allisons' guaranty because they contained no s uch operative

4 See asoWilson CourtLtd.P ship v Tony Maroni' s, Inc., 134 Wn.2d 692, 699, 952 P.2d 5901998).

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language. 5 This argument fails.

Contrary to First -C itizens' argument, these deeds of trust, drafted by i ts predecessor,Venture Bank, expressly stated that they were

GIVEN TO SECURE (A) PAYMENT OF THE INDEBTEDNESS AND (B)PERFORMANCE OF ANY AND ALL OBLIGATIONS UNDER THE NOTE,THE RELATED DOCUMENTS,AND [THE] DEED[ S ] OF TRUST.

CP at 22 ( emphassadded). These deeds otrust defined ( 1 ) Indebtedness as alprincpa,interest, and other amounts, costs and expenses payable under the Note or Related Documents ;and (2) Related Documents to include any guaranties ... whether now o r hereafter existing,execuedin connectionwththe indebtedness. CP at 28 ( emphassadded). A plain reading ofthis language includes the Allisons' earlier guaranty among the now... existing 6 RelatedD o c u m e nts 7 that these deeds of t rust secured.

Similarly, the Allisons guaranty, also drafted by Venture Bank, used the same RelatedDocuments language as follows:5 The Allisons' guaranty asocontaneda provsonpurporting to wave any and all rights ordefenses under an y law which m ay p r ev e nt L e nde r from bringing an y action, including a claimfor deficiency, aganst Guarantor. CP at 32. But in this appeal, First -Citizens expressly doesnot claim that the Allisons waived protection under the deed of trust statute; instead, it arguesthat the anti -deficiency exception to gu aran tor liability simply does no t apply in the first place.Br. oResp' t at 10. See, in contrast,First-Citizens Bank & Trust Co. v. Reikow, No. 43181 -5 -II,2013 WL 6008624, at * 7, n4 ( Wash. Ct. App. June 27, 2013) ( noting, in response to First -Citizens' argument that the guarantor wavedprotection in that case ( 1 ) the WashingtonSupreme Court' s reluctance to enforce a contractual provision waiving statutory requirementsgoverning nonudca foreclosure, and (2) that ` intent to waive must be shown by unequivocalacts or conduct whchare inconsistent wthany intention other than to wave (quotingHarmony atMadrona Park Owners Ass' nv Madison Harmony Dev., Inc., 14 3 Wn. App. 3 45 ,361, 177 P.3d 755 ( 2008))).

6CPat28.CPat28.


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This Guaranty, together wth any Related Documents, constitutes the entireunderstanding an d agreement of the parties a s to the matters set forth in thisGuaranty.

IRelated Documents mean al promissory noes, credt agreemens, loanagreemens, envronmenta agreemens, guaranies, security agreemens,mortgages, deeds of trust, security deeds, collateral mortgages, an d all otherinstruments, agreemens and documents, whether now or h er ea fte r e x is t in g ,executed in connection with the Indebtedness.

CP at 32 -33 ( emphass added). This pan language expressly incorporates future RelatedDocuments, whchunambiguously includes future deeds otrust as wel as promissorynoes executed in connectionwththe indebtedness, nowor hereafter existing, namelyC ornerstone' s promissory n otes and deeds of trust later executed to obtain this contemplatedloan.' CP at 33.

Nor is there any ambiguity in Venture Bank' s identical use o the term theIndebtedness, in both t h e d e e d s of trust a n d the Allisons' guaranty, to refer to Cornerstone' sconstructionloans from Venture bank, securedby the deeds otrust. 0 Thus, we agree with th e

8 First -Citizens d o e s not dispute that Daniel Al l ison executed his guaranty in contemplation o fVenture Bank' s future construction loans to Cornerstone, for which Cornerstone later signedpromissory noessecuredby the deeds otrust onCornerstone' s properties. Instead, First -Citizens and amici curiae, Washington Bankers Association and Washington Federal and UnionBank (WBA), argue that th e deeds of trust could not ha ve a ls o s ecu red th e Allisons guarantybecause they did not o w n the land that Cornerstone provided a s security for the deeds of trust.T ha t the Allisons did not o w n Cornerstone' s property used to secure its deeds of t rustdoes not,undermine the plain language of the deeds of trust, which also secure the Allisons'guaranty. Moreover, even if the language of the deeds of trust describing what they securedwere arguably ambiguous, we wo ul d ha ve to co ns tru e it against First -Cit izens, which stands inthe shoes of the guaranty' s drafter, Venture Bank. See Matsushita, 5 7 Wn. App. at 2 4 6 - 1 7 .9CPat33.to Amici banks make a compelling argument that accepting the Allisons' argument h e r e would

1 c all in to question many similar documents securing an d guaranteeing commercial loans; an d2 ) ru n contrary to the general purpose that p e rs o na l guaranties serve in the banking industry,1


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Allisons that these reciprocal plain terms operate together such that the deeds of trust expresslysecurethe Allisons' guaranty in addtionto Cornerstone' s constructionloan. I I

II. ANTI -DEFICIENCY STATUTE RCW 61 . 24.100

Having determined that the deeds o trust secured the Allisons' guaranty, we nextdetermine whether First -C itizens ca n obtain a deficiency judg me nt against the Allisons for theremaining amount du e on Cornerstone' s loan following th e tr us te e' s sale of Cornerstone' sproperty by nonudcal foreclosure. To make this determination, we address whether RCW61. 2 4 . 10 0 offers the same anti -de ficienc y judg me nt protections to commercial guarantors that itprovides to borrowers. Again, we discern t he s ta tu t e' s plain meaning from th e ordinary meaningof the language at issue, the context inwhich that statutory provision is found, related provisions,andthe statutory schemeas a whoe State v. Engel, 166 Wn.2d 572, 578, 210 P . 3d 10072009).

Washington' s anti -deficiency statue RCW 61. 24.100, categorically prohbts adeficiency judg me nt a ga in st a ny borrower or guarantor following a nonjudicial foreclosure,subectto certanexcepionsfor deeds otrust securing commerca loans12:

namely to assure an additional source of payment to lenders when borr ow er s d efa u lt and theirsecuritiesareinsufficient to satisfy the debt. Here, however, we confront specific language.thatVenture Bank selected for inclusion in these documents and which we must construe against thedraft ing bank, even if the bank' s specific language choice subverts this general guaranty purpose.11 Even if these documents were ambiguous, their interpretation presents an issue of firstimpression in Washington. A Mchigan appellate court, however, addressed identical contractlanguage in Greenville Lafayette, LLC v. Elgin State Bank, 2 9 6 Mich. App. 2 8 4 , 818 N.W.2 d460 ( 2012), concluding that the panlanguage ofthe deed oftrust specifically include[ d]guarantiesin the indebtedness securedby the mortgage Greenville, 2 9 6 Mich. App. at 291.12 See, e.g.,RCW 61. 24.100( 10), infra.

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RCW 61. 24. 100( 10) 14 ( emphassadded). Under th e statutory construction principle expressiounius est exclusio alteriusls, the above language implies that ( 1 this express exception to theanti -deficiency judgment statue is the only excepionunder these crcumstances; and ( 2)therefore, further implies that where a guaranty w as s ecu red by the foreclosed deed of trustwhchasosecureda commerca loan), the lending bank cannot su e th e g u ar an to r for anydeficiency remaining afterthe trustee' s saeothe securedproperty.1614 See aso RCW 61. 24.100( 6), which addresses a lender' s ability to obtain a deficiencyjudgment against a guarantor who granted a deed of trust to secure its guaranty of a commercialloan (which is not the case here):

A g uaranto r g ranting a deed of trust to secure its guaranty of a commercial loanshal l be subject to a deficiency judgment following a trustee' s sale under thatdeed of tr us t o n ly to the extent stated in subs ection ( 3 ) ( a)( i).Emphasis added). Under its plain language, this statutory provision does no t app ly here,

however, because guarantor Allisons did not grant the foreclosed deeds of trust on Cornerstone' sproperty. Instead, it was Cornerstone that granted these deeds of trust, to secure its commercialloan.15 Expression oone thing in a statue implies excusonofohers, and this exclusion ispresumedto be deliberate. State vKelley, 168 Wn.2d 72, 83, 226 P.3d 773 ( 2010) (statuesexception of some weapons listed in firearm enhancement statute shows legislative intent thatcrmesinvolving otherweaponsnotonthe list arenot to be exceped) (citing S ta te v . Delgado,148 Wn.2d 723, 729, 63 P.3d 792 ( 2003), whchsimilarly expaned ` Under expressio uniuses t ex cl us i o a lteriu s , a canon of statutory construct ion, to e xp res s o ne thing in a statute impliesthe excusonothe other. (quoting In re D e t. of Wil l iams, 14 7 Wn.2 d 4 76, 491, 55 P . 3d 5 9 72002))).

16 Amici contendthat this statutory interpretation conflictswthRCW 61. 24.100( 6), see n. 14 andwithRCW 61. 24.100( 3)( c), whichprovides:

This chapter does not preclude any one o r more of th e following after a trustee' ssale under a deed of trust securing a commercial loan executed after June 1 1 ,1998:

c) Subject to th is section,.an action for a deficiency judgment against a guarantorif the guarantor is timely given the n o tic es u n d er RCW61. 2 4 . 0 4 2 .

Emphasis added). We disagree.By its express language, RCW 61. 2 4 . 1 0 0 ( 3 ) ( c) is Subject to other subsections of RCW

61. 24. 100, suchas RCW 61. 24.100( 10), whch limits RCW 61. 24. 100( 3) ( c) by allowing a

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A s w e have already held, the nonjudicially foreclosed deeds of t rust secured the Allisons'guaranty, in addition to s e cu rin g Cornerstone' s promissory notes to Venture Bank. This securitytriggered the statutory limitation in RCW 61. 24. 100( 10), which prohibits a deficiency judgmentactionaganst a guarantor in the Allisons' stuation T he Allisons' guaranty w as secured byCornerstone' s deeds of trust under the plain language of these deeds of trust and other Relateddocuments, 17 all drafted b y V en tu re Bank in contemplation of Cornerstone' s construction loan.In s ho rt, the g ener al statutory prohibition against d eficien cy ju dgmen ts applies to prohibitdeficiency judgments against deed -of- rust- secured guarantors like the Al l isons, despite their roleas guarantors of a commercial loan, when the lender elects nonjudicial foreclosure to obtainrepayment of a defaulted commercial loan secured by deeds of trust that secure no t only the loanbu t also the guaranty. RCW61. 2 4 . 1 0 0 ( 10).

We hold that RCW 61. 2 4 . 1 0 0 ' s anti -deficiency protections prohibit a lender fromobtaining a deficiency judgment against a guarantor whose guaranty w as secured by a non-judicially foreclosed deed otrust that asosecuredthe guaranty. Based on this statute and theplain language of the gu a ra n ty a nd the d eed s of trust, both drafted by the lender, we further holdthat the superior court erred in. awarding First -C itizens a d efic ie nc y ju dg m en t against theAllisons after the nonjudicial foreclosure sales of the properties secured by the deeds of trust.d eficien cy ju dgmen t a ction against a guarantor where the nonjudicially foreclosed deeds of trustdidnot also secure t he gu a ra n ty , a lon g with securing the commercia l loan; because the Allisons'guaranty wassecuredby the deeds otrust, this subsectiondoes not apply here. See also RCW61. 24.100( 3)( a)(i), which allows a deficiency judgment action against a guarantor who caused adecrease in the judicially foreclosed property' s fair value by waste or w ho wrongfully retainedproceeds from the property; because there were no allegations of waste or wrongful retention ofproceeds here, this subsection also does not apply.17CPat33.

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ATTORNEYFEES

Both parties request attorney fees under. RAP 18 . 1 an d the terms of the Allisons'guaranty. Although this commercial guaranty expressly p urp o rts to e ntitle o n ly the lender toattorney fees, 18 RC 4 . 84 . 33019 provides that such unilateral attorney fee provis ions giverecprocal righsto allpartiesto the contract. Because the Allisons are parties to the guarantythat First -Citizens sought to enforce and they are also th e prevailing party, we award themattorney fees on appeal.

W e r ev er se th e superior court' s d eficien cy ju dgmen t an d attorney fee award to First-C itizens an d remand to the super ior court. W e also a w a rd th e Allisons attorney fees o n a p pe al .

J. t _// ,

18 The Allisons' guaranty stated Guarantor agrees to pay u pon demand all of Lender ' s . . .attorneys' fees and Lender' s legal expenses, incurred in connection with the enforcement of thisGuaranty. CP at 32.1 9 RCW4 . 84 . 330 provides:

In an y action on a contract or lease entered into after September 21, 1977, wheresuch contract or lease specifically provides that attorneys' fees an d costs, whichare incurred to enforce the provisions of such contract or lease, shall be awardedto on e of the parties, the prevailing party, whether he or she is the party specifiedin the contract or lease or not, shall be entitled to reasonable attorneys' fees inaddition to c os ts a nd necessary disbursements.

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