359 P.3d 1225
Or. Ct. App.2015Background
- In 2007 Bank of Clark County made a $6.96M acquisition/construction loan to Fifth & Washington, LLC; defendants Wood and Smith signed unconditional, continuing personal guaranties for the borrower’s indebtedness.
- The loan documents included unsigned (2007) and signed (2008) term sheets describing the bank’s commitment to provide permanent financing (a "mini-perm") contingent on conditions (occupancy, CO, lien releases, financial covenants).
- The bank failed in January 2009; the FDIC became receiver and never provided permanent financing; the loan matured March 15, 2009 and Caplan (assignee of Fifth) defaulted with a principal balance of $8,116,173.50.
- Plaintiff (assignee of the defaulted note) sued guarantors for breach of the guaranties; defendants asserted defenses including failure of conditions precedent (permanent financing), breach of contract/bad faith by the bank/FDIC, and that bankruptcy reduced the guarantied obligation.
- The guaranties were broad: "absolute and unconditional" continuing guaranties; expansive definition of "Indebtedness" (including unenforceable debts), broad waivers of defenses (including bankruptcy/setoff/impairment of collateral), an integration clause, and a Washington-law choice of law clause.
- Trial court granted plaintiff summary judgment for full debt + interest; on appeal the court applied Washington law and affirmed, holding guaranties unambiguous and waivers enforceable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether guaranties were conditioned on bank providing permanent financing (condition precedent) | Guaranties are unconditional; no term makes bank performance a condition | Guaranties incorporate "Related Documents" (term sheets) and guarantors intended liability to depend on full funding/permanent financing | Guaranties unambiguous: absolute/unconditional; no condition precedent; summary judgment appropriate |
| Whether extrinsic/parol evidence creates triable ambiguity about guaranty scope | Parol evidence cannot vary clear written guaranty; guaranty language governs | Extrinsic evidence (testimony, term sheets) shows parties intended condition on permanent financing | Extrinsic evidence cannot contradict clear written terms; only one reasonable meaning supports judgment as matter of law |
| Whether affirmative defenses (breach of contract; breach of implied covenant/good faith) preclude enforcement | Bank/FDIC’s failure to fund and repudiation create defenses to guarantors’ liability | Guarantors waived defenses (express, broad waivers) and warranted understanding of waivers | Waivers valid and applicable; defendants may not assert those defenses; summary judgment affirmed |
| Whether bankruptcy/reorganization of borrower reduces guarantors’ liability or judgment amount | Bankruptcy plan and payments reduced the borrower’s obligation; judgment should be reduced accordingly | Guaranty is a guaranty of payment not collection and waives defenses arising from borrower’s bankruptcy; payments can be reflected by satisfaction filings | Guarantors remain liable for full indebtedness; plaintiff may file partial satisfaction to reflect payments; judgment for full amount affirmed |
Key Cases Cited
- National Bank of Washington v. Equity Investors, 81 Wash.2d 886 (Washington 1973) (an unconditional guaranty is absolute; courts will not read in conditions absent clear language)
- Ross v. Harding, 64 Wash.2d 231 (Washington 1964) (definition and construction of conditions precedent; intent governs whether a provision is a condition)
- Lokan & Associates, Inc. v. ABP, 177 Wash. App. 490 (Wash. Ct. App. 2013) (contract interpretation: summary judgment appropriate where contract and context yield only one reasonable meaning)
- Oliver v. Flow Intern. Corp., 137 Wash. App. 655 (Wash. Ct. App. 2006) (extrinsic evidence may explain specific words but cannot vary or contradict the written instrument)
- Jones v. General Motors Corp., 325 Or. 404 (Oregon 1997) (summary judgment review standard; view evidence in light most favorable to nonmoving party)