Appeal from Superior Court of Yakima County. Docket No: 94-2-00489-1. Date filed: 05/12/95. Judge signing: Hon. Susan Hahn.
Authored by. Dennis J. Sweeney. Concurring: Philip J. Thompson, John A. Schultheis.
The opinion of the court was delivered by: Sweeney
SWEENEY, C.J. Ken Pottenger appeals the court's award of damages to Norm Base and denial of his third-party claim for indemnification against Valley Title Guarantee, Inc. He claims a loan he made was not usurious and that Mr. Base did not suffer any damages as an assignee of the purchaser of property. If he is liable, Mr. Pottenger claims that Valley Title should indemnify him for any damages he must pay. We affirm.
In 1986, Robin Caldwell tried unsuccessfully to sell her home. She rented it out until January 1988 when she sold the home by real estate contract to David Fielder and Teresa Fielder (the Fielders). Pioneer National Bank, who had a mortgage on the property, refused to allow the Fielders to assume the mortgage. The broker for the sale, Ken Pottenger, lent Ms. Caldwell $9,000 to pay off the mortgage. In return, Ms. Caldwell signed a note for $12,000 at 12 percent interest making the effective interest rate of the loan 26.79 percent. *fn1 She assigned Mr. Pottenger the contract payments from the Fielders until his note was paid. Ms. Caldwell quitclaimed her vendor's interest to Norm Base, *fn2 who also assumed the loan to Mr. Pottenger.
In July 1990, Ms. Fielder *fn3 wanted to sell the house to Donald Harris. Mr. Pottenger drafted an "Assumption of Indebtedness" for the sale which stated incorrectly that the balance on the contract was $18,602.32. The correct balance was $22,457.81. The "Assumption of Indebtedness" was sent to Valley Title to close the sale. Valley Title assumed that the listed balance was correct since it knew that Mr. Pottenger had been collecting the contract payments although Mr. Base was the original contract seller. If Valley Title had contacted Mr. Base, Mr. Base would have referred Valley Title to Mr. Pottenger.
In September 1992, Mr. Harris wanted to refinance the real estate contract. He assumed, based on the "Assumption of Indebtedness," that Mr. Pottenger's note would be paid off in November 1992 and that the remaining balance on the contract to Mr. Base was $12,000. But based on an amortization schedule, Mr. Pottenger said the total balance for both the contract and the note was $20,503.08. Mr. Harris disagreed with the amount but settled with Mr. Base by giving him the amount the contract balance would have been in November 1992 had the balance been correctly represented in the "Assumption of Indebtedness" prepared in August 1990. He also assigned any cause of action he would have against Mr. Pottenger to Mr. Base.
Mr. Base sued Mr. Pottenger as the assignee of Mr. Harris for negligent representation and for usury based on the assumption of the original loan to Ms. Caldwell. Mr. Pottenger answered and by a third-party complaint sued Valley Title.
The court found for Mr. Base and awarded the difference in the contract price because of Mr. Pottenger's negligent representation. It also awarded damages equal to the improper interest collected on the usurious loan to Ms. Caldwell. The court found against Mr. Pottenger for his claims against Valley Title. The court also awarded attorney fees to both Mr. Base and Valley Title for successfully defending Mr. Pottenger's de novo appeal from arbitration.
Usurious Loan. Mr. Pottenger first claims that the loan to Ms. Caldwell was not usurious since the loan was primarily for commercial or business purposes. He relies on Ms. Caldwell's rental of the home while she was trying to sell the property. See RCW 19.52.080 (preventing any action for usury if the transaction was primarily for commercial, investment or business purposes). Review is de novo. Pacesetter Real Estate, Inc. v. Fasules, 53 Wash. App. 463, 471, 767 P.2d 961 (1989).
When a loan is usurious on its face, the lender bears the burden of proving that the business exception applies. Marashi v. Lannen, 55 Wash. App. 820, 823, 780 P.2d 1341 (1989). The unchallenged findings are that Ms. Caldwell rented the property because she could not sell the home and that the tenants knew that the rental would end when she sold the house. The rental payments were not enough to cover the payments to Pioneer National Bank, the contract payments to Mr. Base, and the real estate taxes and insurance. The note and the assignment also do not contain any language explaining the loan was for a commercial or business purpose. The court's findings are amply supported by the record and support the Conclusion that this was not a commercial or business loan.
Indemnification From Valley Title. Mr. Pottenger next claims that Valley Title should indemnify him for any ...