Court Opinion

ID: 2644714
Source: CourtListenerOpinion
Date Created: 2013-12-03 19:41:09.681304+00
Date Added: 2024-06-11T11:14:03.438652
License: Public Domain

FILED
                                                                                        MiR^ OF APPE1;. S
                                                                                            Ty
                                                                                           J I fib( 10 rINP 11

                                          20 : 3 DEC - 3 APB 9• 20
    IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
                                                                                       STA,rE OF WASHINGTON
                                                    DIVISION II                        Ei Y

FIRST -CITIZENS BANK & TRUST                                                       No. 43619 -1 - II
COMPANY,                                                       I
                                         Respondents,

         V.

CORNERSTONE HOMES &                                                            PUBLISHED OPINION
DEVELOPMENT, LLC, a Washington
Corporation; and its Guarantor DANIEL L.
ALLISON and JEANNE ALLISON,
individually and the marital community
composed thereof,

         HUNT, J. —        Daniel L. and Jeanne Allison, guarantors of three commercial promissory

notes   issued   by   Cornerstone Homes & Development, LLC, appeal the superior court' s judgment

on the pleadings, ordering them to pay a deficiency following a nonjudicial trustee' s sale of

Cornerstone'     s properties     that    secured   the   notes with construction    deeds    of   trust.   The Allisons

argue    that ( 1)    these construction deeds of trust also secured their commercial guaranty

obligations;     and (   2) the   anti-   deficiency      provisions   of   the " Washington Deed of Trust Act "'

prohibit a deficiency judgment against a guarantor when, as here, the underlying deeds of trust

secured   the guaranty.       We    agree.     We hold that RCW 61. 24. 100( 10) prohibited First -
                                                                                                  Citizens

Bank &        Trust Company from obtaining a deficiency judgment against the Allisons because the

deeds of trust that First -Citizens nonjudicially foreclosed to satisfy Cornerstone' s underlying

 Ch. 61. 24 RCW.
No. 43619 -1 - II

debt also secured the Allisons' commercial guaranty under the express terms of the guaranty,

promissory    notes,   and   deeds    of   trust drafted    by          Citizens'
                                                                  First -            predecessor.    Accordingly, we

reverse the superior court' s deficiency judgment against the Allisons and its award of attorney

fees to First -
              Citizens. We also grant attorney fees to the Allisons on appeal.

                                                       FACTS

                                                                            2
         In 2003,    commercial      developer Daniel L. Allison,                managing member of Cornerstone

Homes &     Development, LLC, signed a commercial guaranty, prepared and presented by Venture

Bank, for all subsequent loans from Venture Bank to Cornerstone. The language of this guaranty

stated   that it   encompassed       all   other " related"       documents " executed in connection with the

indebtedness" then or in the future. Clerk' s Papers ( CP) at 33.

         Three years later, from 2006 to 2007, Venture Bank made several commercial loans to

Cornerstone, for which Cornerstone signed three promissory notes, prepared and presented by

Venture Bank.          As security for these promissory notes, Venture Bank took three separate

construction deeds of trust, also prepared and presented by Venture Bank, for three Cornerstone

properties. In 2009, Cornerstone defaulted on all three loans and ceased its business operations.

         The Washington State Department of Financial Institutions closed Venture Bank and

appointed    the Federal Deposit Insurance Corporation ( FDIC)                      as receiver..   The FDIC sold to

      Citizens
First -            most of   Venture Bank'      s assets,   including its       loans to Cornerstone.   On October 2

and November 20, 2009, First -
                             Citizens nonjudicially foreclosed on the Cornerstone properties

secured by the deeds of trust. Following these sales, there remained a $ 4, 240,424. 11 deficiency.

2 This guaranty also obligated Daniel Allison' s wife, Jeanne Allison.

                                                              2
No. 43 619 -1 - II

         First -
               Citizens sued guarantors the Allisons for this deficiency and moved for judgment

on the pleadings. The superior court granted the motion and awarded judgment in favor of First-

Citizens for the full deficiency amount and $ 31, 370. 00 in attorney fees. The Allisons appeal.
                                                           01"
                                                                 M      MI

                                              I. GUARANTY & DEEDS OF TRUST

         The Allisons argue that ( 1) their obligations under their guaranty were discharged when

First -Citizens nonjudicially foreclosed on Cornerstone' s deeds of trust, which also expressly

secured their guaranty; and ( 2) thus, RCW 61. 24. 100 did not allow First -Citizens to obtain a

judgment against them for the loan deficiency that remained after the trustee' s sale of

Cornerstone' s property. We agree.

                                                      A. Standard of Review

         We   review       de   novo     a   trial   court' s order    granting judgment    on   the   pleadings.   N. Coast

Enters., Inc.     v.   Factoria P' ship, 94 Wn.           App.   855, 858, 974 P.2d 1257 ( 1999).         Interpretation of

a contract   is   a question of     law,     which we also review         de   novo.   Wright v. Dave Johnson Ins., Inc.,

167 Wn.      App.      758, 769, 275 P.3d 339, review denied, 175 Wash. 2d 1008 ( 2012).                         Washington

follows the "      objective       manifestation
                                                        theory   of contracts ";   our primary goal in interpreting a

contract   is to       ascertain   the   parties'     intent.    Hearst Commc' ns, Inca       v.   Seattle Times    Co., 154
Wash. 2d 493, 503, 115 P.3d 262 ( 2005).                     Thus, we determine intent by focusing on the parties'

objective manifestation of their intent in the written contract rather than on the unexpressed

subjective    intent     of either   party; in        other words, "    We do not interpret what was intended to be

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

                                                                   3
No. 43619 -1 - II

written      but   what was written."     Hearst, 154 Wash. 2d            at   503, 504 (   emphasis added) (   citing J.W.

Seavey Hop Corp. v. Pollock, 20 Wash. 2d 337, 348 -49, 147 P.2d 310 ( 1944)).

             The rules that apply to contracts also govern interpretation and construction of a

guaranty. Bellevue Square Managers v. Granberg, 2 Wash. App. 760, 766, 469 P.2d 969 ( 1970).4
By signing a guaranty, the guarantor promises a creditor to perform if the debtor fails to repay

the    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 her
             engagement.   If there is a question of meaning, the guaranty is construed against
             the party who drew it up or against the party benefited.

Matsushita Elec. Corp. of Am. v. Salopek, 57 Wash. App. 242, 246 -47, 787 P.2d 963, review

denied 114 Wash. 2d 1029 ( 1990) (                emphasis      added).   Here, it is undisputed that Venture Bank

drafted the Allisons' commercial guaranty and Cornerstone' s deeds of trust.

                        B.   Cornerstone' s Deeds of Trust Secured the Allisons' Guaranty

             First -
                   Citizens argues that the deeds of trust. securing Cornerstone' s promissory notes to

Venture Bank did not secure the Allisons' guaranty because they contained no such operative

4
    See   also     Wilson Court Ltd. P' ship     v.   Tony   Maroni' s, Inc., 134 Wash. 2d 692, 699, 952 P.2d 590
    1998).

                                                                M
No. 43619 -1 - II

               5
language.           This argument fails.

            Contrary to First -Citizens' argument, these deeds of trust, drafted by its 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 (   emphasis       added).        These deeds     of      trust defined ( 1) "   Indebtedness"         as " all principal,

interest, and other amounts, costs and expenses payable under the Note or Related Documents ";

and (   2) " Related Documents" to include any "                         guaranties ...     whether now or hereafter existing,

executed       in       connection with        the indebtedness."           CP   at   28 ( emphasis   added).     A plain reading of
                                                                                                                             6"
this language includes the Allisons'                       earlier   guaranty among the "         now ...        existing "       Related

Documents" 7 that these deeds of trust secured.

             Similarly, the Allisons' guaranty, also drafted by Venture Bank, used the same " Related

Documents" language as follows:

5
    The Allisons' guaranty               also     contained a provision           purporting to      waive "    any and all rights or
defenses" under any law " which may prevent Lender from bringing any action, including a claim
for deficiency, against Guarantor." CP at 32. But in this appeal, First -
                                                                        Citizens expressly does
not claim that the Allisons waived protection under the deed of trust statute; instead, it argues
that " the anti -deficiency exception to guarantor liability simply does not apply in the first place."
Br.    of   Resp' t      at   10. See, in      contrast,   First- Citizens Bank & Trust Co. v. Reikow, No. 43181 -5 -II,
2013 WL 6008624,                  at *   7,    n. 4   ( Wash. Ct.    App.     June 27, 2013) (       noting, in response to First -
Citizens'          argument       that the       guarantor    waived         protection    in that    case: (    1)    the Washington
Supreme Court' s reluctance to enforce a contractual provision waiving statutory requirements
governing nonjudicial foreclosure, and ( 2) that "` intent to waive must be shown by unequivocal
acts    or    conduct          which     are    inconsistent    with      any intention other than to waive. "' ( quoting
Harmony            at   Madrona Park Owners Ass' n                  v.   Madison Harmony Dev., Inc., 143 Wash. App. 345,
361, 177 P.3d 755 ( 2008))).

6CPat28.

    CPat28.
No. 43619- 1- 11

           This   Guaranty,       together    with    any Related Documents, constitutes the entire
           understanding and agreement of the parties as to the matters set forth in this
           Guaranty.
              I
            Related Documents"              mean     all   promissory          notes,       credit      agreements,         loan
           agreements,          environmental        agreements,          guaranties,          security        agreements,

           mortgages, deeds of trust, security deeds, collateral mortgages, and all other
           instruments, agreements and documents, whether now or hereafter existing,
           executed in connection with the Indebtedness.

CP   at    32 -33 (    emphasis    added).     This    plain     language expressly incorporates future " Related

Documents,"           which     unambiguously includes future " deeds                   of   trust"      as   well   as "   promissory

notes" "    executed      in    connection    with   the indebtedness," "          now       or       hereafter existing," namely

Cornerstone' s promissory notes and deeds of trust later executed to obtain this contemplated

loan.'    CP at 33.

           Nor    is    there    any   ambiguity      in    Venture          Bank' s    identical        use    of   the     term " the

Indebtedness, "        9 in both the deeds of trust and the Allisons' guaranty, to refer to Cornerstone' s
construction      loans from Venture bank,            secured     by    the deeds      of   trust. 10    Thus, we agree with the

8 First -Citizens does not dispute that Daniel Allison executed his guaranty in contemplation of
Venture Bank' s future construction loans to Cornerstone, for which Cornerstone later signed
promissory        notes    secured     by   the deeds      of   trust   on    Cornerstone'        s   properties.     Instead, First -
Citizens and amici curiae, Washington Bankers Association and Washington Federal and Union
Bank ( WBA),           argue that the deeds of trust could not have also secured the Allisons guaranty
because they did not own the land that Cornerstone provided as security for the deeds of trust.
       That the Allisons did not own Cornerstone' s property used to secure its deeds of trust
does 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 secured
were arguably ambiguous, we would have to construe it against First -Citizens, which stands in
the shoes of the guaranty' s drafter, Venture Bank. See Matsushita, 57 Wash. App. at 246 - 17.

9CPat33.

to Amici banks make a compelling argument that accepting the Allisons' argument here would
 1) call into question many similar documents securing and guaranteeing commercial loans; and
 2) run contrary to the general purpose that personal guaranties serve in the banking industry,

                                                                    1
No. 43619- 1- 11

Allisons that these reciprocal plain terms operate together such that the deeds of trust expressly
                                                                                                           I I
secure      the Allisons' guaranty in        addition   to Cornerstone'      s construction    loan.

                                   II. ANTI -DEFICIENCY STATUTE RCW 61. 24. 100

            Having       determined that the deeds            of   trust   secured   the Allisons'               guaranty, we next

determine whether First -Citizens can obtain a deficiency judgment against the Allisons for the

remaining amount due on Cornerstone' s loan following the trustee' s sale of Cornerstone' s

property      by     nonjudicial   foreclosure.       To make this determination, we address whether RCW

61. 24. 100 offers the same anti -deficiency judgment protections to commercial guarantors that it

provides to borrowers. Again, we discern the statute' s plain meaning from the ordinary meaning

of the language at issue, the context in which that statutory provision is found, related provisions,

and    the statutory       scheme    as   a " whole."       State v. Engel, 166 Wash. 2d 572, 578, 210 P.3d 1007

 2009).

            Washington'      s        deficiency
                                 anti -                 statute,       RCW    61. 24. 100,     categorically           prohibits   a

deficiency judgment against any borrower or guarantor following a nonjudicial foreclosure,
                                                                                                     12:
subject      to certain exceptions        for deeds   of   trust securing    commercial      loans

namely to assure an additional source of payment to lenders when borrowers default and their
securities are         insufficient to satisfy the debt. Here, however, we confront specific language. that
Venture Bank selected for inclusion in these documents and which we must construe against the
drafting 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 first
impression in Washington.                 A Michigan appellate court, however, addressed identical contract
language in Greenville Lafayette, LLC v. Elgin State Bank, 296 Mich. App. 284, 818 N.W.2d
460 ( 2012), concluding that the " plain language" of the deed of trust " specifically include[ d]
guaranties in the indebtedness secured by the mortgage." Greenville, 296 Mich. App. at 291.
12
     See,   e. g.,   RCW 61. 24. 100( 10), infra.

                                                                   7
No. 43 619 -1 - II

           Except to the extent permitted in this section for deeds of trust securing
           commercial loans, a deficiency judgment shall not be obtained on the obligations
           secured by a deed of trust against any borrower, grantor, or guarantor after a
           trustee' s sale under that deed of trust.

RCW 61. 24. 100( 1) (         emphasis added).           See also Thompson v. Smith, 58 Wash. App. 361, 365, 793
P.2d 449 ( 1990).          Under this statute a creditor sacrifices its usual right to a deficiency judgment

when       the   creditor    elects     the " inexpensive           and    efficient"   nonjudicial foreclosure procedure to

                                   13
satisfy    a   defaulted loan.           Thompson, 58 Wash. App. at 365.

            Subsection ( 10)            creates   an   exception          to    subsection (   1)' s general prohibition against

deficiency judgments following nonjudicial foreclosure by allowing the lender to sue a

commercial loan guarantor if the guaranty was not secured by the foreclosed deed of trust:

            A trustee' s sale under a deed of trust securing a commercial loan does not
            preclude    an    action       to . . .    enforce      any        obligation   of a . . .   guarantor if that
            obligation ...     was not secured by the deed oftrust.

13
     Amici WBA          argue      that it     would " accomplish               nothing"    to have a deed of trust securing a
guaranty.        Br.   of   Amici Curiae WBA              at   9.    We note that First -
                                                                                        Citizens triggered the ultimate
protections afforded by the anti -deficiency statute when it voluntarily elected to avail itself of the
relatively " inexpensive and efficient" nonjudicial foreclosure option. Thompson, 58 Wash. App. at
365.       Moreover, RCW 61. 24. 100( 9)specifically contemplates a party' s ability to forego its
contractual right to recover any portion or all of a deficiency, which First -Citizens did when its
predecessor, Venture Bank, drafted the deeds of trust in such a manner as to secure the Allisons'
guaranty. As the Allisons correctly note,
              First -Citizens had a variety of remedies available to it to collect on the
            Cornerstone debt. It could have foreclosed judicially and simultaneously pursued
            a deficiency against both Cornerstone and the guarantor.     It could have sued on
            the Guaranty first, leaving the foreclosure option available as a later remedy. Or

            it could ( and did) choose the efficient remedy of a Trustee' s sale pursuant to the
            Deed of Trust Act without judicial oversight.
Br.   of   Appellant    at   24.
No. 43619 -1 - II

                              14 (
RCW 61. 24. 100( 10)                 emphasis added).           Under the statutory construction principle expressio

unius est exclusio alteriusls, the above language implies that ( 1) this express exception to the

anti -  deficiency     judgment        statute    is the only          exception      under       these   circumstances;   and (   2)

therefore, further implies that where a guaranty was secured by the foreclosed deed of trust

 which       also   secured    a commercial           loan),    the lending bank cannot sue the guarantor for any
                                                                                                   16
deficiency      remaining      after   the trustee'       s sale of   the   secured   property.

14
       See   also    RCW 61. 24. 100( 6),
                                 which addresses a lender' s ability to obtain a deficiency
judgment against a guarantor who granted a deed of trust to secure its guaranty of a commercial
loan (which is not the case here):
      A guarantor granting a deed of trust to secure its guaranty of a commercial loan
      shall be subject to a deficiency judgment following a trustee' s sale under that
      deed of trust only to the extent stated in subsection (3)( a)( i).
 Emphasis added).    Under its plain language, this statutory provision does not apply here,
however, because guarantor Allisons did not grant the foreclosed deeds of trust on Cornerstone' s
property.       Instead, it was Cornerstone that granted these deeds of trust, to secure its commercial
loan.

15 "
        Expression      of one       thing in    a    statute   implies       exclusion      of   others,   and this exclusion is
presumed       to be deliberate."         State      v.   Kelley,     168 Wash. 2d 72, 83, 226 P.3d 773 ( 2010) (            statute' s

exception of some weapons listed in firearm enhancement statute shows legislative intent that
crimes       involving   other weapons not on               the list   are not    to be   excepted) (     citing State v. Delgado,
148 Wash. 2d 723, 729, 63 P.3d 792 ( 2003),                       which       similarly   explained: "`       Under expressio unius

est exclusio alterius, a canon of statutory construction, to express one thing in a statute implies
the exclusion of the other. "' ( quoting In re Det. of Williams, 147 Wash. 2d 476, 491, 55 P.3d 597

 2002))).

16
       Amici   contend   that this statutory interpretation                 conflicts with   RCW 61. 24. 100( 6), see n. 14 and
with RCW 61. 24. 100( 3)( c), which provides:
             This chapter does not preclude any one or more of the following after a trustee's
             sale under a deed of trust securing a commercial loan executed after June 11,
             1998:

              c) Subject to this section,. an action for a deficiency judgment against a guarantor
             if the guarantor is timely given the notices under RCW 61. 24. 042.
 Emphasis       added).    We disagree.
             By its express language, RCW 61. 24. 100( 3)( c) is " Subject to" other subsections of RCW
61. 24. 100,      such as RCW 61. 24. 100( 10), which limits RCW 61. 24. 100( 3)( c)      by allowing a

                                                                       W]
No. 43619- 1- 11

        As we have already held, the nonjudicially foreclosed deeds of trust secured the Allisons'

guaranty, in addition to securing Cornerstone' s promissory notes to Venture Bank. This security

triggered the statutory limitation in RCW 61. 24. 100( 10),             which prohibits a deficiency judgment

action against       a guarantor   in the Allisons'       situation:   The Allisons' guaranty was secured by

Cornerstone' s deeds of trust under the plain language of these deeds of trust and other " Related

               17
documents,"          all drafted by Venture Bank in contemplation of Cornerstone' s construction loan.

In short, the general statutory prohibition against deficiency judgments applies to prohibit

deficiency judgments against deed -of-trust- secured guarantors like the Allisons, despite their role

as guarantors of a commercial loan, when the lender elects nonjudicial foreclosure to obtain

repayment of a defaulted commercial loan secured by deeds of trust that secure not only the loan

but also the guaranty. RCW 61. 24. 100( 10).

        We hold that RCW 61. 24. 100' s anti -deficiency protections prohibit a lender from

obtaining a deficiency judgment against a guarantor whose guaranty was secured by a non-

judicially foreclosed deed         of   trust that   also secured   the guaranty.   Based on this statute and the

plain language of the guaranty and the deeds of trust, both drafted by the lender, we further hold

that the superior court erred in. awarding First -Citizens a deficiency judgment against the

Allisons after the nonjudicial foreclosure sales of the properties secured by the deeds of trust.

deficiency judgment action against a guarantor where the nonjudicially foreclosed deeds of trust
did not also secure the guaranty, along with securing the commercial loan; because the Allisons'
guaranty was secured by the deeds of trust, this subsection does not apply here. See also RCW
61. 24. 100( 3)(          i),
                    which allows a deficiency judgment action against a guarantor who caused a
                    a)(

decrease in the judicially foreclosed property' s fair value by waste or who wrongfully retained
proceeds from the property; because there were no allegations of waste or wrongful retention of
proceeds here, this subsection also does not apply.

17CPat33.

                                                             10
No. 43619 -1 - II

                                                   ATTORNEY FEES

        Both parties request attorney fees under. RAP 18. 1 and the terms of the Allisons'

guaranty.   Although this commercial guaranty expressly purports to entitle only the lender to
                 18
attorney fees,        RC       4. 84. 33019 provides that such unilateral attorney fee provisions give

reciprocal rights     to   all parties   to the   contract.   Because the Allisons are parties to the guaranty

that First -
           Citizens sought to enforce and they are also the prevailing party, we award them

attorney fees on appeal.

         We reverse the superior court' s deficiency judgment and attorney fee award to First-

Citizens and remand to the superior court. We also award the Allisons attorney fees on appeal.

                                                                     J.          t '_ // t,

18
     The Allisons' guaranty        stated: "      Guarantor agrees to pay upon demand all of Lender' s ...
attorneys' fees and Lender' s legal expenses, incurred in connection with the enforcement of this
Guaranty." CP at 32.

 19 RCW 4. 84. 330 provides:
         In any action on a contract or lease entered into after September 21, 1977, where
         such contract or lease specifically provides that attorneys' fees and costs, which
         are incurred to enforce the provisions of such contract or lease, shall be awarded
         to one of the parties, the prevailing party, whether he or she is the party specified
         in the contract or lease or not, shall be entitled to reasonable attorneys' fees in
         addition to costs and necessary disbursements.

                                                              11