Case Information
*1 IN THE SUPREME COURT OF THE STATE OF IDAHO
Docket No. 38484
WASHINGTON FEDERAL SAVINGS, a )
United States Corporation, ) Boise, August 2012 Term
) Plaintiff-Respondent, ) 2012 Opinion No. 138
) v. ) Filed: November 16, 2012
) H. CRAIG VAN ENGELEN and, ) Stephen W. Kenyon, Clerk KRISTEN VAN ENGELEN, )
)
Defendants-Appellants. )
_____________________________________
Appeal from the District Court of the Fourth Judicial District of the State of Idaho, Ada County. Hon. Cheri C. Copsey, District Judge.
The decision of the district court is affirmed. Attorney’s fees on appeal are awarded to Respondent. Banducci Woodard Schwartzman PLLC, Boise, attorneys for appellants. Thomas Banducci argued.
Wishney Law, Boise, attorneys for respondent. Terry C. Copple argued.
___________________________
W. JONES, Justice
I. N ATURE OF THE C ASE
Two real estate developers, a husband and wife, operated through various entities including a corporation and an LLC. In 2002, the corporation borrowed money from a lender; the developers, in their individual capacities, guaranteed this loan and all future advances. The corporation promptly repaid this loan. In 2005, the LLC twice borrowed money from the same lender. The lender originally insisted on a personal guaranty for these loans, but, in order to secure the developer’s business, stated that no personal guaranty would be required.
In 2006–07, the corporation again borrowed money from the lender in six separate loans. The corporation defaulted on these six loans, and, after the lender foreclosed on the real estate that served as collateral for the loans, the lender sued the developers for the deficiency. The district court granted the lender’s motion for summary judgment, holding that the developers’ affirmative defenses (1) were barred by the statute of frauds, (2) failed for lack of consideration, and (3) raised no genuine issues of material fact. The developers timely appealed to this Court. *2 We hold that the developers’ affirmative defenses are neither barred by the statute of frauds nor fail for lack of consideration. However, because none of those defenses raise a genuine issue of material fact, we affirm.
II. F ACTUAL AND P ROCEDURAL B ACKGROUND
Henry Craig Van Engelen and Kristen Lee Van Engelen (collectively “the Van Engelens”), a husband and wife, are experienced real estate developers. Due to the procedural posture of this case, we construe the following facts in their favor. The Van Engelens finance their projects through Van Engelen Development, Inc. (“VED”), of which they are the controlling shareholders, and Northwest Development Company, LLC (“NWD”), of which they are the controlling members.
In 2002, VED borrowed $126,000 from Washington Federal Savings (“Washington Federal”). The Van Engelens, in their individual capacities, personally guaranteed VED’s repayment—as well as the repayment of any future advances by Washington Federal to VED— through a document titled “Continuing General Guaranty Agreement” (the “Continuing Guaranty”). The Van Engelens waived notice of such future advances, but retained the right to stop guaranteeing new loans made to VED by sending a written notice to Washington Federal. The Continuing Guaranty never mentioned NWD. VED paid back the 2002 loan in full within one year.
The Van Engelens forgot that they signed the Continuing Guaranty, which is unsurprising given that Mr. Van Engelen typically did not read such documents. Because they forgot about the Continuing Guaranty, the Van Engelens never sent a termination notice to Washington Federal in order to avoid personal liability for later loans to VED. In late 2004, Washington Federal approached the Van Engelens to solicit their business, without specifying whether it wished to loan money to NWD or VED. Soon thereafter, the Van Engelens learned of the proposed sale of a multimillion-dollar real estate development and construction project, the Carriage Hill Development Phases Three and Four (the “Carriage Hill Project”). After negotiating an agreement with the seller to purchase the Carriage Hill Project, the Van Engelens solicited proposals from various lenders, including Washington Federal.
In early 2005, Washington Federal submitted a proposal that would have required the Van Engelens to sign a personal guaranty. The Van Engelens refused, explaining that they had decided not to sign any more personal guarantees. Washington Federal accepted this condition and, as a result, NWD accepted two loans from Washington Federal. Upon signing one of the *3 loans, Mr. Van Engelen asked whether there were “personal guarantees associated with this loan.” A Washington Federal employee assured him that there were none, due to the Van Engelens’ longstanding relationship with Washington Federal and the longevity of their company. At some point, the Van Engelens became confused about which entity received the 2005 loans. In affidavits submitted in 2010, the Van Engelens erroneously stated that these loans were to VED. In fact, these loans were made to NWD, and Washington Federal has not alleged that the Continuing Guaranty applies to these loans.
In 2006 and 2007, Washington Federal extended six loans to VED for development of the Carriage Hill Project. Washington Federal never reminded the Van Engelens of the existence of the Continuing Guaranty, although it customarily gave such a reminder. Eventually, VED defaulted on the six loans; after a foreclosure sale, a deficiency of $4,452,809.67 remained.
Washington Federal sued the Van Engelens for the balance on the 2006–07 VED loans pursuant to the Continuing Guaranty. The district court granted Washington Federal’s Motion for Summary Judgment, rejecting the Van Engelens’ numerous affirmative defenses. Ruling from the bench, the district court construed the Van Engelens’ affirmative defenses as attempts to modify the Continuing Guaranty, and held that those defenses were barred by the statute of frauds and failed for lack of consideration. Separately, the district court recognized that the assurances regarding the 2005 NWD loans were irrelevant to the 2006 and 2007 VED loans because NWD and VED were separate entities. The district court rejected all of the Van Engelens’ affirmative defenses, held that no genuine issues of material fact remained, and entered a final judgment from which the Van Engelens timely appealed to this Court.
III. I SSUES ON A PPEAL
A. Are the Van Engelens’ affirmative defenses barred by the statute of frauds?
B. Do the Van Engelens’ affirmative defenses fail for lack of consideration?
C. Do the Van Engelens’ affirmative defenses present any genuine issues of material fact? D. Is either party is entitled to attorney’s fees on appeal?
IV. S TANDARD OF R EVIEW
“When reviewing a grant of summary judgment, this Court applies the same standard of
review used by the district court in ruling on the motion.”
Mortensen v. Stewart Title Guar. Co.
,
149 Idaho 437, 441, 235 P.3d 387, 391 (2010). A grant of summary judgment is warranted
where “the pleadings, depositions, and admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact and that the moving party is entitled to
*4
a judgment as a matter of law.” I.R.C.P. 56(c). The moving party bears the burden of proving
the absence of any issue as to any material fact.
Blickenstaff v. Clegg
,
V. A NALYSIS
A. The Van Engelens’ Affirmative Defenses Are Not Barred by the Statute of Frauds.
Idaho’s statute of frauds requires most guaranty agreements to be evidenced by a writing
signed by the guarantor.
See
I.C. § 9-505(2); I.C. § 9-506 (exceptions). Modifications to a
contract may fall within the statute of frauds.
See Southern v. Southern
,
The Van Engelens do not allege that the Continuing Guaranty was modified. A
modification, like a contract, requires a meeting of the minds.
Idbeis v. Wichita Surgical
Specialists, P.A.
,
Washington Federal claims that
USA Fertilizer, Inc. v. Idaho First Nat’l Bank
, 120 Idaho
271,
Only one of the Van Engelens’ defenses might be subject to the statute of frauds: their argument that the parties did not intend the Continuing Guaranty to apply to the 2006–07 VED loans. It is unclear whether the Van Engelens base this argument on the terms of the Continuing Guaranty itself, or whether they believe that those terms were modified. It is unnecessary to decide this question: as discussed below, the Continuing Guaranty unambiguously applies to all future advances to VED, and therefore there is no genuine issue of material fact surrounding the parties’ intent.
B. The Van Engelens’ Affirmative Defenses Do Not Fail for Lack of Consideration. While both contracts and contract modifications generally must be supported by consideration, Great Plains Equip., Inc. v. N.W. Pipeline Corp. , 132 Idaho 754, 769, 979 P.2d 627, 642 (1999), the Van Engelens do not allege that Washington Federal’s assurances in 2005 either created a new contract or modified the Continuing Guaranty. Moreover, consideration is not an element of any of their defenses.
C. The Van Engelens’ Affirmative Defenses Do Not Present Any Genuine Issues of Material Fact.
Two fatal flaws pervade most of the Van Engelens’ affirmative defenses. The first is that
the Van Engelens in their personal capacities, VED, and NWD are all distinct. Absent grounds
to pierce the corporate veil, a corporation is a separate entity from its shareholders,
see Maroun
v. Wyreless Sys., Inc.
, 141 Idaho 604, 616–17, 114 P.3d 974, 986–87 (2005), and a limited
liability company is a separate entity from its members,
Vanderford Co. v. Knudson
, 144 Idaho
547, 556–57,
The Van Engelens’ reliance on
Sumitomo Bank of Cal. v. Iwasaki
, 447 P.2d 956 (Cal.
1968) is misplaced. That case discussed a lender’s duty to apprise a surety of new facts
suggesting that the debtor would default.
Sumitomo
never addressed whether a lender must
remind a guarantor of his guaranty agreement. No such duty exists in an arm’s-length business
transaction between sophisticated parties.
See Easton Bus. Opportunities, Inc. v. Town Exec.
Suites
,
Similarly, the Van Engelens’ argument that such a duty arose under the Restatement (Second) of Torts § 551 (1977) is unavailing. In order to establish a duty of disclosure under § 551, the Van Engelens would have to show that Washington Federal knew that they were under the misimpression either that they had not entered into the Continuing Guaranty or that it had been revoked. The precise facts in the record cannot reasonably support either conclusion. The Van Engelens never stated in Washington Federal’s presence that they had not signed a continuing guaranty. Nor did Washington Federal ever state that it was unilaterally terminating the Continuing Guaranty. And, while there might well be a genuine issue of material fact if Washington Federal attempted to enforce a separate continuing guaranty with respect to the 2005 NWD loans, none of Washington Federal’s statements show a conclusive intent to end the Van Engelens’ obligations under the Continuing Guaranty, which applied only to the VED loans.
With these two flaws in mind, we analyze each of the Van Engelens’ affirmative defenses in turn, and hold that none of them raise a genuine issue of material fact.
1. Waiver
“A waiver is a voluntary, intentional relinquishment of a known right or advantage, and
the party asserting the waiver must show that he acted in reasonable reliance upon it and that he
thereby has altered his position to his detriment.”
Knipe Land Co. v. Robertson
,
The elements of equitable estoppel are:
(1) a false representation or concealment of a material fact with actual or constructive knowledge of the truth; (2) that the party asserting estoppel did not know or could not discover the truth; (3) that the false representation or concealment was made with the intent that it be relied upon; and (4) that the *7 person to whom the representation was made, or from whom the facts were concealed, relied and acted upon the representation or concealment to his prejudice.
Ogden v. Griffith
,
Here, the Van Engelens did not exercise reasonable care to avoid liability. Mr. Van Engelen did not even read the Continuing Guaranty. Although the Van Engelens could have terminated the Continuing Guaranty to avoid any additional personal liability for VED’s loans, they failed to do so before they forgot that the Continuing Guaranty even existed. When entering into multi-million-dollar loan contracts, the Van Engelens confused the different entities that they operated through and therefore erroneously assumed that Washington Federal’s assurances with respect to NWD applied to VED. Their confusion is unfortunate, but it is their own fault, and they cannot shift the blame to Washington Federal.
The Van Engelens unsuccessfully analogize this case to
Lewis v. Cont’l Life & Accident
Co.
, 93 Idaho 348, 461 P.2d 243 (1969). In
Lewis
, an insured worker’s widow attempted to
collect a death benefit. The insurer denied her claim because her husband had failed to provide
periodic proof that he was disabled during the last several years of his life. However, the proof-
of-disability requirements in the contract were contradictory and ambiguous, and the insurer’s
interpretation was contradicted by a handbook that it issued.
Id.
at 354,
The elements of quasi-estoppel are:
(1) the offending party took a different position than his or her original position, and (2) either (a) the offending party gained an advantage or caused a disadvantage to the other party; (b) the other party was induced to change *8 positions; or (c) it would be unconscionable to permit the offending party to maintain an inconsistent position from one he or she has already derived a benefit or acquiesced in.
Mortensen v. Stewart Title Guar. Co. , 149 Idaho 437, 443, 235 P.3d 387, 393 (2010) (quoting Terrazas v. Blaine Cnty. , 147 Idaho 193, 200 n.3, 207 P.3d 169, 176 n.3 (2009)). Because Washington Federal’s assurances applied only to the 2005 NWD loans, Washington Federal has not taken a different position by insisting that the Continuing Guaranty applies to the 2006–07 VED loans. Covenant of Good Faith and Fair Dealing
There exists in every contract an implied covenant of good faith and fair dealing that
“requires the parties to perform, in good faith, the obligations required by their agreement.”
Commercial Ventures, Inc. v. Rex M. & Lynn Lea Family Trust
,
As support for their argument that Washington Federal violated the covenant of good faith and fair dealing, the Van Engelens rely on Lacrosse State Bank v. Estate of McLoone , 359 N.W.2d 179 (Wis. Ct. App. 1984) (unpublished). Setting aside the question of whether an unpublished case from a sister state’s intermediate court of appeals is persuasive authority, McLoone is readily distinguishable. In that case, a forty-five-percent shareholder personally guaranteed a corporation’s debts to a bank. After the corporation paid off two loans from the bank, the shareholder sold his interest in the corporation. The bank was aware of this. Nonetheless, after the corporation defaulted on a later loan, the bank sued the former shareholder’s estate under his personal guaranty. The court reasoned that the bank knew that the former shareholder “had no reason to guarantee” new loans to the corporation. Here, in contrast, the Van Engelens never sold their interests in VED. They had every reason to guarantee new debts incurred by a corporation of which they remained the controlling shareholders. Nor did Washington Federal’s failure to notify the Van Engelens of the existence of the Continuing Guaranty deprive them of any benefit under that contract. See WXI/Z Sw. Malls v. Mueller , 110 P.3d 1080, 1088 (N.M. Ct. App. 2005) (landlord’s failure to notify guarantors of tenant’s rent payments that tenant was in arrears did not violate covenant of good faith and fair dealing because this did not deprive guarantors of any benefit under the contract).
5. Lack of Intent
In an effort to show that the parties did not intend the Continuing Guaranty to apply to
the 2006–07 VED loans, the Van Engelens invite us to follow
Cadle Co. v. Newhouse
, 756
N.Y.S.2d 48 (N.Y. App. Div. 2002). In
Cadle
, a wife executed a continuing guaranty when her
husband borrowed $50,000 from a bank. The husband paid for this loan by borrowing $75,000
from the bank’s successor, and then paid off that loan by borrowing $2 million from the
successor. When the husband defaulted, he still owed almost $1.8 million; the successor’s
assignee sued the wife for the deficiency. The district court granted summary judgment in favor
of the assignee, but the appellate court reversed. It noted that the wife raised genuine issues of
material fact regarding whether a statute prohibited enforcement of the continuing guaranty and
whether the wife’s schizophrenia made the guaranty voidable for lack of capacity.
Id.
at 50.
Without citing any authority, and without analyzing the language of the guaranty agreement, the
court also noted in passing that “it is not clear that the guaranty was intended to apply to
anything but the initial $50,000 indebtedness.” To the extent that this unsupported dictum has
any bearing on the contract now before us, we do not find it persuasive and decline to follow it.
Fraud, Fraudulent Inducement, Misrepresentation, and Discharge
“Fraud consists of ‘(1) a statement or a representation of fact; (2) its falsity; (3) its
materiality; (4) the speaker’s knowledge of its falsity; (5) the speaker’s intent that there be
reliance; (6) the hearer’s ignorance of the falsity of the statement; (7) reliance by the hearer; (8)
justifiable reliance; and (9) resultant injury.’ ”
[1]
Asbury Park, LLC v. Greenbriar Estate
Homeowners’ Ass’n
, 152 Idaho 338, 345, 271 P.3d 1194, 1201 (2012) (quoting
Taylor v.
McNichols
,
(1) if there is a fiduciary or other similar relation of trust and confidence between the two parties; (2) in order to prevent a partial statement of the facts from being misleading; or (3) if a fact known by one party and not the other is so vital that if *10 the mistake were mutual the contract would be voidable, and the party knowing the fact also knows that the other does not know it.
Id.
at 918–19, 277 P.3d at 365–66 (quoting
Sowards v. Rathbun
, 134 Idaho 702, 707, 8 P.3d
1245, 1250 (2000)). “A promise or statement that an act will be undertaken is actionable, if it is
proven that the speaker made the promise without intending to keep it.”
Country Cove Dev., Inc.
v. May
,
Recovery
“[A] plaintiff who is injured by actionable conduct of a defendant is ordinarily denied
recovery for damages which could have been avoided by reasonable acts, including reasonable
expenditures, after actionable conduct has taken place.”
Weinstein v. Prudential Prop. & Cas.
Ins. Co.
,
D. Washington Federal Is Entitled to Attorney’s Fees on Appeal; The Van Engelens Are Not.
Idaho Code section 12-120(3) provides in pertinent part that a prevailing party “shall be allowed a reasonable attorney’s fee” in “any civil action to recover on . . . [a] guaranty.” This is a civil action to recover on a guaranty, and Washington Federal is the prevailing party; therefore, *11 Washington Federal is entitled to attorney’s fees on appeal. The Van Engelens did not prevail and therefore are not entitled to attorney’s fees.
VI. C ONCLUSION
The Van Engelens have not defended this lawsuit on the grounds that Washington Federal’s 2005 assurances were either a new contract or a modification of the 2002 Continuing Guaranty. Thus, the Van Engelens’ affirmative defenses are neither barred by the statute of frauds nor fail for lack of consideration. However, none of those defenses raise a genuine issue of material fact. Therefore, the district court properly granted Washington Federal’s Motion for Summary Judgment, and Washington Federal is entitled to attorney’s fees on appeal.
Chief Justice BURDICK, Justices EISMANN, J. JONES and HORTON CONCUR.
[1] The Van Engelens note that, according to the pattern civil jury instructions, the ninth element of the defense of fraud—as opposed to a claim of fraud—is: “The defendant [has returned] [has offered to return] to the plaintiff (whatever the defendant would be legally obligated to return in order to prevent his being unjustly enriched).” I.D.J.I 6.27.1 (brackets in original). We were unable to locate any precedent that supports the differing ninth element. However, we decline to rule on this question because it was cursorily briefed and does not affect the outcome here.