Hemenway v. Miller, No. 21962-6-I

CourtCourt of Appeals of Washington
Writing for the CourtREVELLE
Citation55 Wn.App. 86,776 P.2d 710
Docket NumberNo. 21962-6-I
Decision Date31 July 1989
Parties, 9 UCC Rep.Serv.2d 652 Robert W. HEMENWAY and Patricia Hemenway, husband and wife, Respondents/Cross-Appellants, v. Margaret MILLER and Ken Miller, husband and wife, and the marital community composed thereof, Appellants/Cross-Respondents.

Page 86

55 Wn.App. 86
776 P.2d 710, 9 UCC Rep.Serv.2d 652
Robert W. HEMENWAY and Patricia Hemenway, husband and wife,
Respondents/Cross-Appellants,
v.
Margaret MILLER and Ken Miller, husband and wife, and the
marital community composed thereof,
Appellants/Cross-Respondents.
No. 21962-6-I.
Court of Appeals of Washington,
Division 1.
July 31, 1989.
Review Granted Oct. 5, 1989.

[776 P.2d 711]

Page 88

Arnold B. Robbins, Beth Henney, Breskin and Robbins, Seattle, for Margaret and Ken Miller.

Robert A. Wolle, Oak Harbor, for Robert and Patricia Hemenway.

REVELLE, Judge Pro Tem. *

In 1980, Margaret and Ken Miller (Miller) sold a business to Robert and Patricia Hemenway (Hemenway) for $113,000. Hemenway made a $20,000 down payment and executed a $93,000 promissory note for the balance, to be paid in annual installments of $13,000. Miller took a security interest in the inventory, equipment and goodwill of the business.

Miller filed a UCC financing statement, a copy of which bears the date of December 17, 1980, at the time of the sale to Hemenway. The statement was effective to maintain their security interest for five years. Miller did not file a continuation statement and their security interest became unperfected in December 1985.

In 1984, Hemenway sold the business to Sturtz, who agreed to assume and pay the original promissory note. In consenting to this sale Miller first refused to sign a consent form containing language releasing Hemenway from further responsibility. This form also contained a provision for Sturtz' assumption of Hemenway's obligation. Miller subsequently signed a consent form allowing Hemenway to resell the business and stating, "We [Miller] expressly do not waive, surrender or release any monetary obligation due and owing by Robert W. Hemenway and Patricia Hemenway, husband and wife, with regard to our sale" of the

Page 89

business. Miller also required Sturtz to furnish a financial statement as a condition of granting consent to the sale.

In October 1985, Sturtz obtained a bank loan of $25,000. The loan was secured by entering into an agreement which gave the bank a security interest in the inventory of the business.

In October 1986, Sturtz defaulted and breached the terms of the purchase and sale agreement by failing to pay the October 1986 annual installment payment of $13,000 to Miller. Sturtz subsequently abandoned the business and filed for bankruptcy. Hemenway paid the October 1986 installment payment of $13,000 to Miller and discovered the existence of the bank's security interest in the inventory.

In November 1986, Hemenway commenced this action for damages and discharge from liability on the note. The basis of Hemenway's claim was that Miller impaired the value of the collateral by failing to file the continuation statement. The trial court entered a partial summary judgment holding Miller liable to Hemenway for impairment of Hemenway's recourse to collateral. Following trial on the issue of damages, the court ruled that Hemenway was entitled to partial discharge of liability on the note in the amount of $32,919.26. [776 P.2d 712] No money judgment was entered in favor of Hemenway. The trial judge denied Hemenway's request for attorney fees.

Miller has appealed the judgment and decree and also raises issues pertaining to the order of partial summary judgment. These issues are:

1. Did Hemenway, originally the primary obligor, become a surety as to the debt by operation of law?

2. Did failure to file the continuation statement constitute impairment of collateral?

3. Did a material issue of fact exist, precluding summary judgment?

4. Did Miller's refusal to release Hemenway from the obligation cause Hemenway to remain primarily liable on the note?

Page 90

5. Did Miller's security interest terminate when Hemenway sold the collateral?

6. Under RCW 62A.9-504(1) must the costs of sale be deducted from the sale value of the collateral in determining the extent of impairment of collateral?

7. Did the trial court err in awarding more in damages than Hemenway had actually paid at the time of trial?

Hemenway raises the following issues on cross-appeal:

1. Did the trial court err in denying the request for attorney fees?

2. Did the trial court use an improper measure of damages?

STANDARD OF REVIEW

The issue of liability was determined on motions for summary judgment. In reviewing an order of summary judgment the appellate court engages in the same inquiry as the trial court. Escalante v. Sentry Ins., 49 Wash.App. 375, 743 P.2d 832 (1987); Hostetler v. Ward, 41 Wash.App. 343, 704 P.2d 1193 (1985). Summary judgment is proper only when the pleadings, depositions and admissions in the record, together with any affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. CR 56(c). If reasonable minds could reach but one conclusion, an issue of fact may be determined as a matter of law. All facts and reasonable inferences are considered most favorably to the nonmoving party. Wilson v. Steinbach, 98 Wash.2d 434, 437, 656 P.2d 1030 (1982). The moving party must meet this burden by setting out its version of the facts and alleging there is no genuine issue as to the facts offered. Hash v. COH, 110 Wash.2d 912, 916, 757 P.2d 507 (1988). Once there has been an initial showing of the absence of any genuine issue of material fact, the party opposing summary judgment must respond with more than conclusory allegations, speculative statements, or argumentative assertions of the existence of unresolved factual issues. Trane Co. v.

Page 91

Brown-Johnston, Inc., 48 Wash.App. 511, 513-14, 739 P.2d 737 (1987).

CREATION OF SURETYSHIP BY OPERATION OF LAW

Miller first contends that the primary obligor cannot become a surety on the debt by operation of law. Miller also contends that Hemenway is not a party entitled to discharge under RCW 62A.3-606, which provides:

(1) The holder discharges any party to the instrument to the extent that without such party's consent the holder

(a) without express reservation of rights releases or agrees not to sue any person against whom the party has to the knowledge of the holder a right of recourse or agrees to suspend the right to enforce against such person the instrument or collateral or otherwise discharges such person, except that failure or delay in effecting any required presentment, protest or notice of dishonor with respect to any such person does not discharge any party as to whom presentment, protest or notice of dishonor is effective or unnecessary; or

(b) unjustifiably impairs any collateral for the instrument given by or on behalf of the party or any person against whom he has the right of recourse.

[776 P.2d 713] (Emphasis added.) Miller cites numerous cases which limit the right of discharge to sureties. 1 Miller contends that Hemenway could not become a surety merely as a result of the sale and assumption by Sturtz.

The trial court based the summary judgment on the rule set forth in Smiley v. Wheeler, 602 P.2d 209 (Okla.1979), that "an original debtor who pays a debt, assumed by another, becomes subrogated to the creditor's rights because the original debtor occupies the position of surety as to the party assuming the debt." (Emphasis added.) Smiley, at 212-13. Accord, Westinghouse Credit Corp. v. Wolfer, 10 Cal.App.3d 63, 66, 88 Cal.Rptr. 654 (1970); Twombley v. Wulf, 258 Or. 188, 482 P.2d 166 (1971).

In Smiley, the plaintiff sold laundry equipment to the defendant and took a promissory note and a security interest in the equipment. The defendant then sold the equipment to a third party, Straughn. The plaintiff/seller agreed to the

Page 92

sale and assumption of the debt by Straughn. Straughn subsequently made payments to the plaintiff and financed the purchase of new equipment through a note and purchase money security interest from a local bank. Later, Straughn filed for bankruptcy. The plaintiff subsequently filed an action against the defendant, seeking judgment on the note.

As in the instant case, the plaintiff in Smiley had failed to file a continuation statement and the security interest became unperfected. 2 Defendant claimed discharge under U.C.C. § 3-606. The court ruled (1) the original debtor occupied the position of surety as to the party assuming the debt, (2) the phrase "any party to an instrument" in Section 3-606 may include a maker who has transferred his interest in the collateral, thus assuming the position of a surety, (3) the original debtor upon payment of the debt to the creditor becomes subrogated to the creditor's rights, (4) the failure to file the continuation statement impaired the collateral under Section 3-606. Smiley, at 212-13. The court concluded that the defendant was not entitled to discharge only because he had failed to demonstrate the value of the collateral lost.

Smiley is persuasive authority in this case. The facts of Smiley are virtually on point. There is relatively little Washington case law on the issue presented here; however, the principles in Smiley are consistent with several Washington cases.

Timms v. James, 28 Wash.App. 76, 621 P.2d 798 (1980), is authority for the creation of suretyship by operation of law. In that case Timms set up a dental practice by purchasing

Page 93

dental equipment from Burkhart. The purchase was financed by a loan from a bank which Burkhart co-signed. Timms then sold the practice to James by entering into an assignment agreement to which the Bank consented. Timms remained liable as the obligor.

James subsequently defaulted on the obligation. Burkhart paid the balance down on the note, sold the dental equipment and demanded the amount of deficiency from Timms. Timms then sued James for that amount. In reaching the issues of the commercial reasonableness of the sale of the collateral, the court held that Timms occupied the position of a surety in relation to...

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7 practice notes
  • Hemenway v. Miller, 56430-2
    • United States
    • United States State Supreme Court of Washington
    • April 4, 1991
    ...note in the amount of $32,724.36, the gross value of the collateral. The Court of Appeals affirmed. Hemenway v. Miller, 55 Wash.App. 86, 776 P.2d 710 (1989). We In October 1980, the defendants, Margaret and Ken Miller, 1 sold a retail business to plaintiffs, Robert and Patricia Hemenway, wh......
  • Sunwest Bank of Farmington v. Kennedy, 18124
    • United States
    • New Mexico Supreme Court of New Mexico
    • January 12, 1990
    ...Smiley v. Wheeler, 602 P.2d 209 (Okla.1979); Twombley v. Wulk, 258 Or. 188, 482 P.2d 166 (1971); Hemenway v. Miller, 55 Wash.App. 86, 776 P.2d 710, review granted, --- Wash. ----, 781 P.2d 1323...
  • McClincy v. Miller Roofing Enterprises, Inc., 66375-5-I
    • United States
    • Court of Appeals of Washington
    • May 7, 2012
    ...consider an issue absent argument and citation to legal authority). [42] Clerk's Papers at 63 (emphasis added). [43] Hemenway v. Miller, 55 Wn.App. 86, 97, 776 P.2d 710 (1989), rev'd on other grounds, 116 Wn.2d 725 (1991). [44] Clerk's Papers at 26-27 (emphasis added). [45] Id. at 27 (empha......
  • McClincy v. Miller Roofing Enters., Inc., 66375-5-I
    • United States
    • Court of Appeals of Washington
    • May 7, 2012
    ...consider an issue absent argument and citation to legal authority). 42. Clerk's Papers at 63 (emphasis added). 43. Hemenway v. Miller, 55 Wn. App. 86, 97, 776 P.2d 710 (1989), rev'd on other grounds, 116 Wn.2d 725 (1991). 44. Clerk's Papers at 26-27 (emphasis added). 45. Id. at 27 (emphasis...
  • Request a trial to view additional results
7 cases
  • Hemenway v. Miller, No. 56430-2
    • United States
    • United States State Supreme Court of Washington
    • April 4, 1991
    ...note in the amount of $32,724.36, the gross value of the collateral. The Court of Appeals affirmed. Hemenway v. Miller, 55 Wash.App. 86, 776 P.2d 710 (1989). We In October 1980, the defendants, Margaret and Ken Miller, 1 sold a retail business to plaintiffs, Robert and Patricia Hemenway, wh......
  • Sunwest Bank of Farmington v. Kennedy, No. 18124
    • United States
    • New Mexico Supreme Court of New Mexico
    • January 12, 1990
    ...Smiley v. Wheeler, 602 P.2d 209 (Okla.1979); Twombley v. Wulk, 258 Or. 188, 482 P.2d 166 (1971); Hemenway v. Miller, 55 Wash.App. 86, 776 P.2d 710, review granted, --- Wash. ----, 781 P.2d 1323...
  • McClincy v. Miller Roofing Enterprises, Inc., 66375-5-I
    • United States
    • Court of Appeals of Washington
    • May 7, 2012
    ...consider an issue absent argument and citation to legal authority). [42] Clerk's Papers at 63 (emphasis added). [43] Hemenway v. Miller, 55 Wn.App. 86, 97, 776 P.2d 710 (1989), rev'd on other grounds, 116 Wn.2d 725 (1991). [44] Clerk's Papers at 26-27 (emphasis added). [45] Id. at 27 (empha......
  • McClincy v. Miller Roofing Enters., Inc., No. 66375-5-I
    • United States
    • Court of Appeals of Washington
    • May 7, 2012
    ...consider an issue absent argument and citation to legal authority). 42. Clerk's Papers at 63 (emphasis added). 43. Hemenway v. Miller, 55 Wn. App. 86, 97, 776 P.2d 710 (1989), rev'd on other grounds, 116 Wn.2d 725 (1991). 44. Clerk's Papers at 26-27 (emphasis added). 45. Id. at 27 (emphasis...
  • Request a trial to view additional results

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