Deborah Mccallum v. Golf Escrow Corporation ( 2014 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DEBORAH MCCALLUM, an individual,
o
No. 71137-7-1
Appellant,
DIVISION ONE
v.
GOLF ESCROW CORPORATION, a \~)
Washington corporation; STERLING V?
FINANCIAL CORPORATION, a
Washington corporation; TRUSTEE
SERVICES, INC., a Washington UNPUBLISHED OPINION
corporation; PAMELA J. LANE, an
individual; FILED: December 15, 2014
Respondents,
PHILIP D. HINGSTON and DEBBIE
HINGSTON, husband and wife,
HYPERION CAPITAL GROUP, LLC, an
Oregon limited liability company; BANK
OF AMERICA, N.A.; and MORTGAGE
ELECTRONIC REGISTRATION
SYSTEMS, INC., a Delaware
corporation; and FEDERAL HOME
LOAN MORTGAGE CORPORATION,
Defendants.
Becker, J. — This appeal involves an unsecured creditor's attempt to
impose liability upon third parties for the balance owing when her debtor
defaulted. The debtor paid off part of the debt by making the creditor the
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beneficiary of a deed of trust without her knowledge. We affirm the summary
judgment dismissal of her claims against the entities that handled that deed of
trust transaction.
This court reviews an order granting summary judgment de novo,
performing the same inquiry as the trial court. Wilson Court Ltd. P'ship v. Tony
Maroni's. Inc., 134 Wn.2d 692, 698, 952 P.2d 590 (1998). Summary judgment is
properly granted when the pleadings, affidavits, depositions, and admissions on
file demonstrate that there is no genuine issue of material fact. CR 56(c). All
facts and reasonable inferences are considered in a light most favorable to the
nonmoving party, and all questions of law are reviewed de novo. Wilson Court
Ltd.. 134Wn.2dat698.
The record reflects that the appellant, Deborah McCallum, is an
experienced real estate agent who specialized in locating and marketing
properties for residential development in Edmonds. Her neighbor and friend,
Craig Reimer, worked as a contractor and developer in the Edmonds area. In
2004, McCallum began to loan money to Reimer to be used in his real estate
business, Eaglewood-Homes, Inc. Per the terms of their oral agreement, (1) the
loan was due on demand, (2) Reimer would give a deed of trust against one of
his properties whenever McCallum requested it, (3) the deed would secure the
entire loan balance, and (4) interest would accrue at 1.75 percent over prime per
year. Between 2004 and 2008, McCallum loaned Reimer a total of $800,000.
Reimer periodically made payments of both principal and interest. In spring
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2008, the balance owing was $550,000. McCallum asked Reimer to pay off the
loan.
In July 2008, Reimer refinanced an existing construction loan from Sterling
Savings Bank, a wholly owned subsidiary of respondent Sterling Financial
Corporation, and obtained $890,000.1 Reimer intended to use part of these
proceeds to pay off part of the balance of his debt to McCallum. For reasons
undisclosed in the record, the bank required Reimer to execute a deed of trust
naming McCallum as a beneficiary. Reimer did so, and the deed of trust was
recorded against a Reimer property located at 915 Cedar Street in Edmonds.
The deed of trust designated McCallum as beneficiary and stated that it secured
payment of $320,000. Respondent Trustee Services Inc. was the named trustee.
Later that month, the bank placed the $890,000 in loan proceeds in escrow with
respondent Golf Escrow Corporation. At the bank's request, Golf Escrow issued
a check for $320,000 to McCallum to satisfy the deed of trust in full.
Reimer gave McCallum the check for $320,000 on July 31, 2008, without
informing her that it was in satisfaction of a deed of trust. McCallum demanded
that Reimer pay the remaining $230,000. Reimer assured her that he would pay
it eventually. McCallum cashed the check the next day. The check was drawn
on an account belonging to Golf Escrow, and it listed an escrow number.
Nevertheless, McCallum remained unaware that she had been, however briefly,
a beneficiary of a deed of trust.
1 See Clerk's Papers at 205-06 (Debbie Hingston's declaration).
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No. 71137-7-1/4
On August 12, 2008, Golf Escrow, through its principal Pamela Lane,
asked Trustee Services to record a reconveyance of the deed of trust. On
September 30, 2008, Trustee Services asked Golf Escrow for a written request
for reconveyance signed by the beneficiary, McCallum. Golf Escrow forwarded
this request to Reimer. On October 28, 2008, Trustee Services received a
request for reconveyance form purportedly signed by McCallum. On October 31,
2008, Trustee Services recorded a full reconveyance. According to McCallum,
her signature on this document was forged and she was never asked to sign a
request for reconveyance.
In December 2008, McCallum asked Reimer to sign a promissory note
and deeds of trust that her lawyers had drafted to secure the balance of
$230,000. Reimer refused to sign, but he again assured McCallum that he would
continue making payments.
In fall 2009, Reimer asked McCallum to take a reduction of her loan. She
refused. In December 2009, Reimer stopped making payments. During this
time, the property at 915 Cedar Street was listed for sale at $890,000—the
amount the bank had loaned Reimer. In January 2010, Debbie and Philip
Hingston offered to buy it for $845,000. With the bank's approval of the short
sale, Reimer accepted the offer and the sale closed in May 2010.
On May 10, 2010, McCallum filed suit against Reimer and Eaglewood.
During discovery, McCallum learned for the first time about the deed of trust
Reimer had executed for her benefit in July 2008.
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McCallum obtained a judgment for the $230,000 balance plus interest, but
she was unable to collect it. Reimer and his wife received a discharge in
bankruptcy in August 2011.
On October 29, 2012, McCallum filed the present lawsuit. All defendants
obtained dismissal on summary judgment, and McCallum filed this appeal. After
a stipulated dismissal of several other respondents, the remaining respondents
are Trustee Services, Golf Escrow, Pamela Lane, and Sterling Financial.
McCallum asserts that these respondents breached fiduciary, statutory, and
contractual duties by failing to contact her directly to verify the terms of her loan
to Reimer and failing to obtain from her a valid, unforged request for
reconveyance.
For purposes of summary judgment, we will assume that the respondents
did breach various duties in the manner alleged. Proximate causation and
damages are elements of McCallum's claims of negligence, breach of fiduciary
duty, and consumer protection violations. Below, the respondents' motions for
summary judgment argued that McCallum suffered no damages because she
was paid in full for the amount secured. Thus, the issue on appeal is whether
their actions damaged McCallum.
In opposition to summary judgment, McCallum argued that the deed of
trust was given to secure the total debt of $550,000—an argument she does not
make on appeal. She also made what we will refer to as the "allocation"
argument—that even if the deed of trust was given to secure only $320,000, the
check she received in that amount was or should have been allocated to the
No. 71137-7-1/6
unsecured portion of the total debt, leaving the deed of trust to secure the
remaining $230,000. She asserted that if she had known there was a deed of
trust securing the remaining $230,000, she could have simply foreclosed on it
before it was reconveyed.
On appeal, McCallum repeats the allocation argument, but she initially
makes a new argument that we shall refer to as the "lost opportunity" argument.
She alleges that she lost the opportunity to protect herself against Reimer's
eventual default because the respondents did not make her aware of the deed of
trust. She contends that if she had known about the deed of trust transaction,
she would have immediately demanded and obtained full security from Reimer
for the remaining loan balance:
Further, presented with Reimer's dishonesty, McCallum
would not have relied on his promise to pay the remaining balance,
but would have immediately demanded that Reimer execute a
Deed of Trust securing the remaining loan balance as required by
their agreement. (CP 119-20). McCallum could have also availed
herself of other remedies, including immediately filing suit against
Reimer and filing lis pendens against the development properties
that Reimer had agreed would serve as security for McCallum's
loan upon her demand.
Brief of Appellant at 19.
Generally, failure to raise an issue before the trial court precludes a party
from raising it on appeal. RAP 2.5. McCallum acknowledges this rule but
asserts that, at a minimum, her "lost opportunity" argument on appeal is so
closely related to the "allocation" argument she raised below that it deserves to
be addressed on the merits. Reply Br. of Appellant at 8 n.5, citing Lunsford v.
Saberhaqen Holdings. Inc.. 139 Wn. App. 334, 338, 160 P.3d 1089 (2007) (an
No. 71137-7-1/7
appellate court may exercise its discretion to consider new arguments that are
"arguably related" to arguments made below), aff'd. 166 Wn.2d 264, 208 P.3d
1092(2009).
The allocation argument asks the court to presume that McCallum was
secured for the balance of $230,000 until the respondents wrongfully eliminated
her security. The lost opportunity argument does not presume that McCallum
ever had security for the balance of $230,000; rather, it presumes that she could
have forced Reimer to give her security for the balance of $230,000 at the time of
the deed of trust transaction if she had known about it. Respondents might have
developed the record differently if McCallum had made the lost opportunity
argument below. The two arguments are not so closely related that respondents
should have seen it coming. We decline to consider the lost opportunity
argument for the first time on appeal. RAP 2.5.
We now address the allocation argument. This is the claim that Reimer's
partial payment of $320,000 was or should have been allocated to the unsecured
portion of his debt. McCallum draws her argument from a general rule that
applies when a creditor is owed two different debts by the same debtor. If the
creditor receives a payment without direction as to how it should be applied, the
creditor may apply the payment to either debt. Ellinqsen v. W. Farmers Ass'n. 12
Wn. App. 423, 426, 529 P.2d 1163 (1974). A creditor who is secured as to one
debt but not the other will normally apply the payment to the unsecured debt first
in order to retain maximum security.
No. 71137-7-1/8
McCallum declares, "When I received the check, I understood the
$320,000 was simply a payment against the aggregate debt owed. In fact, I
necessarily associated the funds only with unsecured debt because I did not yet
know any portion had been secured." According to McCallum, after she
discovered the documents reflecting there had been a deed of trust, on advice of
counsel she "more specifically applied the check first to any loan balance which
might be deemed unsecured." She concludes that had the respondents not
wrongfully reconveyed the deed of trust, she would have remained secured with
a first position deed of trust for the balance of $230,000. "The damages flowing
from respondents' wrongful release of McCallum's security interest are thus
easily calculable as the remaining amount of Reimer's loan that was still secured
by the Deed of Trust—$230,000." Br. of Appellant at 22.
The respondents invoke an exception to the general rule known as the
"particular source" rule. When money received for payment of a debt is known to
the creditor to have been derived from a particular source, the creditor may not
unilaterally apply the proceeds to a debt unrelated to the source from which such
proceeds were generated. Ellinqsen. 12 Wn. App. at 426, citing Cummings v.
Erickson. 116 Wash. 347, 199 P. 736 (1921). The respondents argue that
Reimer's payment of $320,000 necessarily had to be applied to exonerate the
deed of trust because the deed of trust was the source of that payment. They
conclude that the balance of $230,000 remained unsecured, and therefore the
reconveyance of the deed of trust did not damage McCallum.
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No. 71137-7-1/9
The general rule is typically applied in circumstances where there are two
distinct debts, and the creditor knows one is secured and the other is unsecured.
See, e.g.. Ellinqsen. 12 Wn. App. at 425-26. That is not what happened here.
McCallum did not request security for the loan and did not expect to be the
beneficiary of a deed of trust. When she received the payment of $320,000, she
did not know it was given to satisfy a deed of trust. She thought the total debt
was unsecured.
The particular source exception to the general rule is applied when the
money with which the payment is made is known to the creditorto have been
derived from a particular source or fund. Cummings, 116 Wash, at 351. That is
not what happened here, either. At the time McCallum received the payment of
$320,000, she did not know it was in satisfaction of the deed of trust.
Because McCallum did not know there was a deed of trust, she did not
allocate the payment of $320,000 at the time she received it. And Reimer did not
give her any direction as to how it should be allocated. Where neither the
creditor nor the debtor directs application of the payment to any particular debt,
the court will apply the payment according to its own notion of the intrinsic equity
and justice of the case. Oakes Logging. Inc. v. Green Crow. Inc.. 66 Wn. App.
598, 602, 832 P.2d 894 (1992). McCallum cites Oakes Logging and argues that
equity calls for allocating the $320,000 in a manner that provides her, as the
creditor, with the greatest security on the remaining balance.
The Restatement of Contracts, an authority not cited by the parties, also
supports resort to equity when no allocation has been made, but it states that
No. 71137-7-1/10
consideration must also be given to the interests of third parties. "If neither the
debtor nor the creditor has exercised his power with respect to the application of
a payment as between two or more matured debts, the payment is applied to
debts to which the creditor could have applied it with just regard to the interests
of third persons, the debtor and the creditor." Restatement (Second) of
Contracts § 260 (1981) (emphasis added).
In this atypical case, equity does not favor McCallum's interest over third
party interests. McCallum loaned money to Reimer without obtaining security.
At the time Reimer made her a beneficiary of a deed of trust, she was at risk of
losing the total debt of $550,000. As a result of becoming the beneficiary of a
deed of trust securing $320,000, her risk of loss was reduced to $230,000.
McCallum is in no worse position than if she had never been a beneficiary of the
deed of trust. In fact, it appears her position was improved by the deed of trust
transaction even though she was not informed of it. It would be inequitable to
shift the risk of loss from McCallum to the entities that facilitated the deed of trust
transaction.
We conclude these are not appropriate circumstances for an equitable
allocation of the $320,000 payment to unsecured debt. Even assuming that the
respondents wrongfully failed to contact McCallum before releasing the security,
she was unsecured as to the balance of $230,000 and therefore she cannot
show that she was damaged by their conduct.
The orders granting summary judgment are affirmed.
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No. 71137-7-1/11
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WE CONCUR:
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