Court Opinion

ID: 2799937
Source: CourtListenerOpinion
Date Created: 2015-05-11 22:18:17.255186+00
Date Added: 2024-06-11T11:29:34.275818
License: Public Domain

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       IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

LARASCO, INC., a Washington              )
corporation,                                 No. 71158-0-1
                                             (consolidated w/71450-3-1)
                    Respondent,          )
                                             DIVISION ONE
             w
             V.                          i

DEL NORTE, LLC, a Washington             )
limited liability company,               )

                    Defendant,           )   UNPUBLISHED OPINION

             and                             FILED: May 11, 2015

SR DEVELOPMENT, LLC, a                   )
Washington limited liability company;    )
and ELLIOTT J. SEVERSON,                 )

                    Appellants,          j
             and

MARK ROBERTS; and EDWARD                 )
ROBERTS;

                    Defendants.          )

      Becker, J. — This appeal is from a judgment and award of attorney fees

entered after a bench trial. The dispute involved a million dollar loan made by
No. 71158-0-1/2

Larasco Inc. to appellant SR Development LLC.1 We affirm the judgment, but

reverse the award of attorney fees insofar as it bound appellant Elliott Severson

as a guarantor.

      Severson, Mark Roberts, and Edward Roberts owned SR Development at

the time Larasco loaned the money. The Roberts and Severson signed a

promissory note in their capacities as members of SR Development. Under the

terms of the note, SR Development was obligated to make monthly payments of

$12,000.00 to Larasco for one year beginning on May 1, 2008. A final payment

of $961,875.64 was to be paid on May 1, 2009. If SR Development defaulted,

Larasco was entitled to receive 12 percent interest on the note.

       Severson and the Roberts also signed an "Addendum to Promissory Note

(Additional Security)" in their individual capacities. This document will be referred

to as the "Security Addendum." In it, the Roberts and Severson agreed to secure

the note with their interests in a piece of property known as the Lakemont

Building. The Lakemont Building was a commercial real estate project the

Roberts and Severson jointly owned and controlled through I-90 Lakemont LLC.

The Roberts and Severson agreed that in the event of a default on the

promissory note, "Holder" (i.e. Larasco) in its sole discretion would have the right

       1 The trial court's findings of fact and conclusions of law explaining the
basis for its judgment refer to three promissory notes. Each note resulted in
litigation. The first note relates to Larasco's million dollar loan to SR
Development. The second note is related to a $705,476 loan made by Larasco
to Del Norte LLC. The third note was created after SR Development made an
advanced payment on the million dollar loan. This appeal addresses issues
related to the first and third notes. The Del Norte loan is not at issue in this
appeal.
No. 71158-0-1/3

to require them to "execute and properly record a Deed of Trust" to the Lakemont

Building.

        The third document in connection with the loan was the "Addendum to

Promissory Note (Unconditional Guarantee)" signed by the Roberts and

Severson in their individual capacities.

        Larasco drafted the documents to close the deal. All of the documents

were simultaneously executed.

        In September 2008, SR Development made a $500,000.00 advance

payment to Larasco on the loan. SR Development issued a second promissory

note to Larasco for $481,358.55. The trial court found this was to reflect the

amount of principal remaining after the $500,000.00 payment. The second note

included most of the terms of the original loan, except that the parties agreed to

extend the final payment date until September 2013.

        Soon, SR Development asked Larasco to modify the terms of the loan

once more because it was experiencing financial difficulties. In May 2009,

Larasco agreed to lower the interest rate to five percent and lower the monthly

payments. The parties executed an addendum reflecting that modification.

        The loan went into default in March 2012. No further payments were

made.

        In August 2012, Larasco notified Severson and the Roberts that Larasco

was exercising its right under the Security Addendum to require them to execute

and record a deed of trust on the Lakemont Building. When this did not happen,

Larasco recorded a lis pendens and initiated litigation.
No. 71158-0-1/4

       Larasco's first amended complaint requested a judgment against SR

Development for all amounts due under the notes related to the loan, as

amended; a judgment against Severson and the Roberts for all amounts due

under the guarantee; declaratory relief confirming that Larasco held a valid

security interest in the Lakemont Building; and attorney fees. Larasco also

requested an order of specific performance requiring the defendants to execute

and record a deed of trust on the Lakemont Building.

       Before trial, the Roberts stipulated to a settlement with Larasco. On July

19, 2013, the trial court entered an order reflecting the terms of the Roberts-

Larasco stipulation. Under that order, Larasco became entitled to a judgment

against the Roberts, as well as a capped amount of attorney fees.

       In October 2013, Larasco went to trial against Severson. The trial court

entered a judgment on the note for $559,056.21, jointly and severally against

defendants SR Development, the Roberts, and Severson. This amount included

accrued interest. The trial court also made an award against SR Development,

Severson, and the Roberts, jointly and severally, for the $177,050.93 in attorney

fees and costs that Larasco incurred between May 4, 2012, and July 19, 2013.

The remaining $124,492.09 in attorney fees and costs that Larasco incurred

between July 20, 2013, and the entry of judgment on November 4, 2013, were to

be paid by Severson.

      Severson appeals.
No. 71158-0-1/5

       SPECIFIC PERFORMANCE OF THE SECURITY ADDENDUM WAS
                                PROPERLY ORDERED

        The trial court ordered Severson to convey and record a deed of trust on

the Lakemont Building in favor of Larasco under the terms of the Security

Addendum. Severson contends specific performance was improper because the

Security Addendum did not specify the material terms to be included in the deed

of trust.

        Specific performance should be granted only if an agreement can be

enforced without judicially-supplied material terms. Setterlund v. Firestone. 104
Wash. 2d 24, 25-26, 700 P.2d 745 (1985); Hubbell v. Ward. 40 Wash. 2d 779, 781-82,

246 P.2d 468 (1952). Severson contends the material terms for a deed of trust

include provisions for forfeiture, default, risk of loss, liens by third parties,

insurance, taxes, acceleration, and due-on-sale clauses, none of which are

mentioned in the Security Addendum.

        The provisions identified by Severson may indicate the existence of a

"final agreement." Ecolite Mfg. Co. v. R.A. Hanson Co.. 43 Wash. App. 267, 272,

716 P.2d 937 (1986). But Severson cites no authority indicating that all such

provisions must be present to justify an order of specific performance of an

agreement to provide a deed of trust. Together, the promissory note and the

Security Addendum provide all material terms required to enforce the parties'

agreement. The Security Addendum identifies the Lakemont Building as the

property upon which a deed of trust was to be executed and recorded in case of

default. The promissory note establishes when a default occurs. These terms
No. 71158-0-1/6

were sufficient to support an order requiring execution and recordation of a deed

of trust to the Lakemont Building upon default.

       Severson further contends that the Security Addendum is unenforceable

under the real estate statute of frauds because its description of the Lakemont

Building is inadequate. The property is described in the Security Addendum as

follows:

       The real estate commonly known as: The Lakemont Building,
       which is located at 5150 Village Park Dr. S.E., and more fully
       described as: an unexecuted and unrecorded Deed of Trust on
       the I-90 Lakemont Building located at 5150 Village Park Dr.
       S.E., Bellevue, WA 98006.

       Washington has a special statute of frauds for real property that requires

every real estate conveyance or encumbrance to be executed by deed.

RCW 64.04.010. To comply with the real estate statute of frauds, every deed

conveying an interest in platted real property must correctly describe the real

estate by lot number, block number, addition, city, county, and state to be

enforceable. RCW 64.04.010; Key Design Inc. v. Moser, 138 Wash. 2d 875, 881,

983 P.2d 653, 993 P.2d 900 (1999). The description quoted above does not

include all of these items.

       The real estate statute of frauds does not encompass all contracts that

refer to real property. Firth v. Lu, 146 Wash. 2d 608, 614-15, 49 P.3d 117 (2002). It

applies only to: "(1) actual conveyances of title or interests in real property; and

(2) agreements that create or evidence an encumbrance of real property." Firth,
146 Wash. 2d at 614. If an agreement does not fall within those two categories, it
No. 71158-0-1/7

may be enforced so long as the property that is the subject of that agreement can

be readily identified. See Firth. 146 Wash. 2d at 614-15.

       Severson does not demonstrate that the unrecorded Security Addendum

is a conveyance, or that it creates or evidences an encumbrance. It reflects a

promise by the signatories to create a deed of trust if and when SR Development

defaulted on the loan. According to the terms of the Security Addendum, the

holder of the promissory note may require "the undersigned" to "execute and

properly record a Deed of Trust" on the Lakemont Building if payment under the

note is not timely received. Thus, the Security Addendum is not itself a deed of

trust. If it were a deed of trust, there would have been no need for the borrowers

to promise to execute and record a deed of trust in the future in the event of a

default. We conclude the real estate statute of frauds does not apply because

the Security Addendum did not convey or encumber the Lakemont Building.

       Continuing with the mistaken premise that the Security Addendum was a

conveyance or encumbrance, Severson contends that specific performance was

improper because the Security Addendum was not signed by anyone who had

the ability to convey or encumber the Lakemont Building. The Lakemont Building

was owned by 1-90 Lakemont. The Security Addendum was signed by the

Roberts and Severson individually, with no indication that they were acting on

behalf of I-90 Lakemont.

      The lack of signature by anyone acting on behalf of I-90 Lakemont does

not render the Security Addendum unenforceable. Severson and the Roberts

were the controlling owners of I-90 Lakemont. They were the individuals who
No. 71158-0-1/8

would have the authority to execute and record a deed of trust to the Lakemont

Building in the event of a default on the promissory note. Severson provides no

basis for holding that his promise to do so in the Security Addendum is

unenforceable.

       Finally, Severson contends it was inequitable to enforce the Security

Addendum against him because of his detrimental reliance on certain statements

by Larasco. To prevail under a theory of equitable estoppel, Severson must

establish a statement upon which he detrimentally relied and that his reliance

was reasonable. Laymon v. Dep't of Natural Res., 99 Wash. App. 518, 525, 994
P.2d 232 (2000).

       Severson claims to have believed that SR Development satisfied its

obligations under the first promissory note by paying Larasco $500,000 ahead of

schedule. He says he understood that Larasco needed cash, and the

consideration to SR Development for the advance payment of $500,000 was

discharge of the original note. Severson alleges that Larasco confirmed this

understanding in unrelated bankruptcy litigation.

      The trial court found the evidence Severson presented to support this

argument was less credible than Larasco's evidence. The court concluded the

parties never intended to discharge the obligations under the first promissory

note. The trial court's findings underlying this conclusion are supported by

substantial evidence. Accordingly, the trial court's conclusion will not be

disturbed.

                                         8
No. 71158-0-1/9

       Because we reject Severson's argument that the Security Addendum was

void and of no effect, we necessarily reject his argument that Larasco lacked

substantial justification for recording a lis pendens against the Lakemont

Building.

       In summary, the Security Addendum specifies the material terms

necessary to support the award of specific performance, its description of the

Lakemont Building did not need to comply with the real estate statute of frauds, it

was signed by individuals who had the capacity to carry out the promise they

undertook, and its enforcement against Severson is not inequitable. The trial

court did not err in ordering specific performance of the promise to execute and

record a deed of trust to the Lakemont Building.

   THE UNCONDITIONAL GUARANTEE DID NOT INCLUDE LIABILITY FOR
                                 ATTORNEY FEES

       Severson claims the trial court erred by requiring him to pay Larasco's

attorney fees as a guarantor.

        In Washington, a litigant is generally not entitled to attorney fees unless

authorized by contract, statute, or a recognized ground in equity. Barnett v.

Buchan Baking Co.. 108 Wash. 2d 405, 408, 738 P.2d 1056 (1987).

       The promissory note provides for an award of attorney fees for loan-

related litigation, but the only entity obligated by the note's provision is SR

Development:

       In case suit or action is commenced to collect this note or any
       portion thereof I/We, SR DEVELOPMENT, LLC promises to pay, in
       addition to the costs provided by statute, such sum as the court
       may adjudge reasonable as attorney's fees therein (including any
No. 71158-0-1/10

      action to enforce the judgment and this provision as to attorney's
      fees and costs shall survive the judgment.).

       Larasco contends that Severson became personally liable for the award of

attorney fees against SR Development by signing the Unconditional Guarantee.

There is no specific reference to attorney fees in the Unconditional Guarantee.

However, the guarantee refers to the terms of the promissory note. The

operative terms of the guarantee are found in its first paragraph:

      For value received, at the request of the undersigned and in
      reliance on this guaranty, the undersigned as a direct and primary
      obligation,   hereby,   jointly  and    severally,  unconditionally
      guarantee(s) the prompt payment of principal and interest on
      Promissory Note No. 08-0002, executed on even date herewith,
      when and as due in accordance with its terms, and hereby waive(s)
      diligence, presentment, demand, protest, or notice of any kind
      whatsoever, as well as any requirement that the holder exhaust any
      right or take any action against the maker of the foregoing
      promissory note and hereby consent(s) to any extension of time or
       renewal thereof.

       Severson responds that the words used in the guarantee—

"unconditionally guarantee(s) the prompt payment of principal and interest"—

make him liable only for the principal and interest accrued on the note.

       "Sureties and guarantors are not held liable beyond the express terms of

their agreement." Kennev v. Read. 100 Wash. App. 467, 474, 997 P.2d 455,

amended on denial of recons., 4 P.3d 862 (2000). When a guarantee is part of a

transaction involving multiple documents, all of the instruments must be read

together even ifthey are not executed by the same parties. Kennev, 100 Wn.

App. at 474. If a guarantee can be reasonably interpreted to have more than one

meaning, it should be construed against the drafter. Seattle-First Nat'l Bank v.

Hawk, 17 Wash. App. 251, 256, 562 P.2d 260 (1977).

                                         10
No. 71158-0-1/11

          The Roberts, who were the other guarantors, interpret the guarantee

language to include all amounts due under the note, including attorney fees.

Larasco contends the Roberts' interpretation is significant extrinsic evidence of

intent.

          Under the "context rule," extrinsic evidence can be used to discern

contractual intent, but only so long as it does not subtract from, vary, or

contradict the written words of a contract. Berg v. Hudesman. 115 Wash. 2d 657,

667-78, 801 P.2d 222 (1990). Here, the written words of the guarantee ensure

payment of principal and interest on the note. They do not guarantee anything

else. We cannot add language to the guarantee to make it conform to the

extrinsic evidence. "Extrinsic evidence is to be used to illuminate what was

written, not what was intended to be written." Hollis v. Garwall, Inc.. 137 Wash. 2d
683, 697, 974 P.2d 836 (1999): see also MacLean Townhomes. L.L.C. v. Am. 1st

Roofing & Builders Inc. 133 Wash. App. 828, 831, 138 P.3d 155 (2006). If the

intent was to have Severson and the Roberts guarantee attorney fees that might

be awarded to Larasco against the maker of the note, the guarantee should have

used a broader phrase, such as "all obligations under the note," rather than

merely guaranteeing principal and interest.

          Larasco suggests it is only fair that Severson should have to pay attorney

fees because Severson's answer asserted a contractual right to recover attorney

fees if he prevailed. But Severson was responding on behalf of SR Development

as well as himself. SR Development was relying on the attorney fee provision in

the note, not necessarily on the language of the guarantee.

                                           11
No. 71158-0-1/12

       In a case cited by Larasco, our Supreme Court held a guarantor liable for

the attorney fees incurred to collect money under a contract even though the

guarantor did not expressly agree to guarantee those costs. N. Pac. Fin. Corp. v.

Howell-Thompson Motor Co., 162 Wash. 387, 298 P. 424 (1931). The contract

in that case contained an express promise by the vendee to pay attorney fees.

The vendor assigned the contract. In the assignment, the vendor guaranteed the

payment of all moneys "due or to become due under said contract" as well as "all

costs incurred by holder." N. Pac. Fin. Corp., 162 Wash, at 388. In view of the

broad phrasing of the guarantee, the court determined that even though the

guarantee did not specifically mention attorney fees, "all of the provisions of the

contract are guaranteed by the defendant," including the promise to pay attorney

fees. N. Pac. Fin. Corp., 162 Wash, at 393.

       Severson's guarantee is not as broad. Severson's guarantee of payment

of principal and interest on the note "when and as due in accordance with its

terms" does not encompass the attorney fee provision in the note. The attorney

fee provision in the note was binding only on SR Development.

       Larasco argues that the award of attorney fees against Severson can be

upheld as a matter of equity. Attorney fees may be awarded to a prevailing party

when a case is resolved under principles of equity or if litigation has been

pursued in bad faith. Wright v. Dave Johnson Ins., Inc., 167 Wash. App. 758, 784,

275P.3d 339. review denied, 175Wn.2d 1008 (2012): Rooerson Hiller Corp. v.

Port of Port Angeles, 96 Wash. App. 918, 926-27, 982 P.2d 131 (1999), review

denied, 140 Wash. 2d 1010 (2000). The judgment here sounds in contract, not

                                         12
No. 71158-0-1/13

equity, and the trial court did not find that Severson pursued this matter in bad

faith.

         The liability of a guarantor "cannot be enlarged beyond the strict intent of

his contract." Hansen Serv. v. Lunn. 155 Wash. 182, 191, 283 P. 695 (1930).

We conclude the court erred in holding Severson personally liable for Larasco's

attorney fees.

                                 MOTION TO STRIKE

         Although the Roberts were once Severson's codefendants, they settled

with Larasco before trial and entered into a stipulation that capped their liability

for attorney fees as of the date of the stipulation. Having settled, they did not file

a notice of appeal. Nevertheless, on August 4, 2014, the Roberts filed a brief as

respondents opposing Severson's appeal. The Roberts claim that they are

entitled to address this court "in order to avoid any prejudice to them that might

result from this appeal if the trial court's decision were not affirmed."

         Severson moved to strike the Roberts' brief on the ground that the

Roberts have no standing to oppose his appeal:

         The Roberts brothers stipulated that they would be liable for a sum
         certain regardless of the outcome of this litigation. They did so
         under no duress and while represented by counsel. Now, the
         Roberts brothers want to file a responsive brief despite having
         intentionally removed themselves from the case by stipulating to
         judgment. In reality, the Roberts' brief is an amicus brief filed
         without permission of the Court in violation of RAP 10.6. The
         Roberts have no basis to file a brief to protect their "rights," and are
         not a respondent to this appeal. The Roberts' brief should be
         stricken.

                                           13
No. 71158-0-1/14

       The Roberts oppose the motion to strike. Ifthe motion is granted, the

Roberts request that this court clarify "that any relief Severson may obtain will be

conditioned on a lack of adverse effect on them." The cases the Roberts cite as

authority do not even remotely suggest that a defendant who has settled prior to

trial has the right to file a brief in a codefendant's appeal.

       If there are multiple parties on a side of a case and fewer than all of the

parties on that side timely file a notice of appeal, this court will grant relief only (1)

to a party who has timely filed a notice, (2) to a party who has been joined, or (3)

to a party if demanded by the necessities of the case. RAP 5.3(i). This court will

permit the joinder of a party who did not give notice only if the party's rights or

duties are derived through the rights or duties of a party who timely filed a notice

of appeal. RAP 5.3(i); see, e.g., Genie Indus., Inc. v. Market Trans., Ltd.. 138
Wash. App. 694, 707-16, 158 P.3d 1217 (2007). The Roberts do not invoke RAP

5.3 nor do they explain why this court should determine that they are necessary

parties to this appeal.

       The motion to strike is granted. The judgment on the note is affirmed.

The award of attorney fees against Severson individually is reversed.

                                                        OeJfeg,
WE CONCUR:

                                                                 fax, J-

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