Opinion ID: 1163410
Heading Depth: 1
Heading Rank: 4

Heading: Spokane Concrete's Guaranty of June 29, 1987; REEC's Modification Agreement of July 24, 1990

Text: The trustee seeks to avoid both these obligations on the ground some of the moneys involved can be traced to the leveraged buyout. U.S. Bank argues the trustee is estopped from avoiding the June 29, 1987, guaranty because Spokane Concrete retained and used benefits obtained through the underlying transaction and separately ratified the guaranty. U.S. Bank maintains Spokane Concrete benefited from its guaranty in three ways: by receiving administrative and accounting support from REEC paid for by a loan to REEC secured by the guaranty; by consummating the Agreement in which Spokane Concrete participated in REEC's tax loss carry-forward; and by increasing the profitability of Empire Forest Products, Inc., thereby strengthening Empire Forest's cross guaranty of Spokane Concrete's debt. Although the full extent to which Spokane Concrete received these benefits is not set forth in the record, the record shows at least one clear monetary benefit flowing to Spokane Concrete from its June 29, 1987, guaranty of REEC's debt: its annual loan payments were reduced from $200,000 to $126,000. This benefit, with or without any others not defined fully in the record, was sufficiently valuable to support the guaranty. The trustee contends the guaranty is ultra vires because it lies in the shadow cast by REEC's leveraged buyout of Spokane Concrete. As with the other challenged transactions, however, the trustee has failed to show fraud, dishonesty, or incompetence by Spokane Concrete's directors in executing its June 29, 1987, guaranty. Accordingly, Spokane Concrete's retention and use of benefits derived from the guaranty constitutes ratification of the guaranty. By negotiating Spokane Concrete's Modification Agreement on July 24, 1990, Spokane Concrete further ratified its guaranty. These ratifications, together or separately, estop both Spokane Concrete and its trustee in bankruptcy from asserting the June 29, 1987 guaranty was executed ultra vires. Union Fruit, 1 Wn.2d at 284; A.M. Castle, 198 Wash. at 589; Millett, 193 Wash. at 480; Pierce, 31 Wn. App. at 218-19. Additionally, the record suggests U.S. Bank offered loans to REEC in reasonable reliance on Spokane Concrete's guaranty, an obligation Spokane Concrete freely and voluntarily incurred for the precise purpose of securing such loans. Such reasonable detrimental reliance by U.S. Bank constitutes a separate ground for estopping the trustee's ultra vires claims. United States Fid. & Guar. Co. v. Cascade Constr. Co., 106 Wash. 478, 484-85, 180 P. 463 (1919). REEC's Modification Agreement on July 24, 1990, was executed subject to Spokane Concrete's June 29, 1987, guaranty. Certification, at 11. Because Spokane Concrete's guaranty is enforceable, REEC's Modification Agreement is enforceable against the trustee according to the terms of the guaranty itself. We therefore answer the third question posed by the Bankruptcy Court as follows: Spokane Concrete's June 29, 1987, guaranty is enforceable against the trustee; and REEC's Modification Agreement on July 24, 1990, is enforceable against the trustee according to the terms of Spokane Concrete's June 29, 1987, guaranty.