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First-Citizens Bank & Trust Co. v. Cornerstone Homes & Dev., LLC

Court of Appeals of Washington, Division 2

December 3, 2013

First-Citizens Bank & Trust Company, Respondent,
Cornerstone Homes & Development, LLC, et al., Appellants

Appeal from Pierce County Superior Court. Docket No: 10-2-13379-3. Date filed: 05/24/2012. Judge signing: Honorable John Russell Hickman.

Margaret Y. Archer, for appellants.

Douglas N. Kiger (of Blado Kiger Bolan, PS ), for respondent.

Peter J. Mucklestone, Gregory R. Fox, Ryan P. McBride, Averil B. Rothrock, and Matthew Turetsky on behalf of Washington Federal, Union Bank NA, and Washington Bankers Association, amici curiae.

AUTHOR: J. Robin Hunt, J. We concur: Lisa Worswick, C.J., Jill M Johanson, J.


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Hunt, J.

[178 Wn.App. 209] ¶ 1 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 antideficiency provisions of the " Washington Deed of Trust Act" [1] 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 debt also secured the Allisons' commercial guaranty [178 Wn.App. 210] under the express terms of the guaranty, promissory notes, and deeds of trust drafted by First-Citizens' 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.


¶ 2 In 2003, commercial developer Daniel L. Allison,[2] 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.

¶ 3 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.

¶ 4 The Washington State Department of Financial Institutions closed Venture Bank and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. The FDIC sold to First-Citizens 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.

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[178 Wn.App. 211] ¶ 5 First-Citizens sued guarantors the Allisons for this deficiency [3] 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.


I. Guaranty & Deeds of Trust

¶ 6 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

¶ 7 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. Dave Johnson Ins., Inc. v. Wright, 167 Wn.App. 758, 769, 275 P.3d 339, review denied, 175 Wn.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, Inc. v. Seattle Times Co., 154 Wn.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, " [w]e do not interpret what was intended to be written but what was written." [178 Wn.App. 212] Hearst, 154 Wn.2d at 503, 504 (emphasis added) (citing J.W. Seavey Hop Corp. v. Pollock, 20 Wn.2d 337, 348-49, 147 P.2d 310 (1944)).

¶ 8 The rules that apply to contracts also govern interpretation and construction of a guaranty. Bellevue Square Managers v. Granberg, 2 Wn.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 Wn.App. 242, 246-47, 787 P.2d 963, review denied 114 Wn.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

¶ 9 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 language.[5] This argument fails.

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¶ 10 [178 Wn.App. 213] Contrary to First-Citizens' argument, these deeds of trust, drafted by its predecessor, Venture Bank, expressly stated that they were


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 this language includes the Allisons' earlier guaranty among the " now ... existing" [6] " Related Documents" [7] that these deeds of trust secured.

¶ 11 Similarly, the Allisons' guaranty, also drafted by Venture Bank, used the same " Related Documents" language as follows:

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.
... .
" 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.

[178 Wn.App. 214] 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.[8] CP at 33.

¶ 12 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 Allisons that these reciprocal plain terms operate together such that the deeds of trust expressly secure the Allisons' guaranty in addition to Cornerstone's construction loan.[11]

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[178 Wn.App. 215] II. Anti-Deficiency Statute RCW 61.24.100

¶ 13 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 antideficiency 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 Wn.2d 572, 578, 210 P.3d 1007 (2009).

¶ 14 Washington's antideficiency statute, RCW 61.24.100, categorically prohibits a deficiency judgment against any borrower or guarantor following a nonjudicial foreclosure, subject to certain exceptions for deeds of trust securing commercial loans [12]:

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 Wn.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 [178 Wn.App. 216] and efficient" nonjudicial foreclosure procedure to satisfy a defaulted loan.[13] Thompson, 58 Wn.App. at 365.

¶ 15 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 of trust.

RCW 61.24.100(10)[14] (emphasis added). Under the statutory construction principle expressio unius est exclusio [178 Wn.App. 217] alterius [15], the

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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 deficiency remaining after the trustee's sale of the secured property.[16]

¶ 16 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 [178 Wn.App. 218] the plain language of these deeds of trust and other " Related documents," [17] 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).

¶ 17 We hold that RCW 61.24.100's antideficiency protections prohibit a lender from obtaining a deficiency judgment against a guarantor whose guaranty was secured by a nonjudicially 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.


¶ 18 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 attorney fees,[18] RCW 4.84.330 [19] provides that such unilateral attorney

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fee provisions give reciprocal [178 Wn.App. 219] 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.

¶ 19 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.

Worswick, C.J., and Johanson, J., concur.

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