National Bank of Washington v. Equity Investors

• Decision Date: 19 February 1976
• Docket Number: No. 43558,43558
• Citation: 546 P.2d 440,86 Wn.2d 545
• Court: Washington Supreme Court
• Parties: NATIONAL BANK OF WASHINGTON, Tacoma, Washington, and General Mortgage Investments, a Maryland Real Estate Investment Trust, Respondents, v. EQUITY INVESTORS, a limited partnership, et al., Defendants, Walter F. Stepnitz et al., Appellants, Joseph F. Macdonald et al., Defendants, Transamerica Title Insurance Company, Respondent, R. G. Construction, Inc., et al., Defendants, and Puget Sound Power & Light Company et al., Additional Defendants.

Page 545

86 Wn.2d 545

546 P.2d 440

NATIONAL BANK OF WASHINGTON, Tacoma, Washington, and General Mortgage Investments, a Maryland Real Estate Investment Trust, Respondents, v. EQUITY INVESTORS, a limited partnership, et al., Defendants Walter F. Stepnitz et al., Appellants Joseph F. Macdonald et al., Defendants Transamerica Title Insurance Company, Respondent R. G. Construction, Inc., et al., Defendants, and Puget Sound Power & Light Company et al., Additional Defendants.

No. 43558.

Supreme Court of Washington, En Banc.

Feb. 19, 1976.

Schweppe, Doolittle, Krug, Tausend, Beezer & Beierle, Robert R. Beezer, Seattle, for appellants.

Bogle & Gates, Dan P. Hungate, Michael W. Dundy, Seattle, for respondents.

WRIGHT, Associate Justice.

This appeal involves the issues of guarantors' liability; the amount of deficiency that can be charged them under a mortgage foreclosure proceeding; the propriety of granting an upset price in a mortgage foreclosure proceeding and the correctness of denying a motion to consolidate two trials related to the appellants' (guarantors') liability. This appeal follows two former appeals coming before this court; (1) National Bank of Washington v. Equity Investors, 81 Wash.2d 886, 506 P.2d 20 (1973), and (2) National Bank of Washington v. Equity Investors, 83 Wash.2d 435, 518 P.2d 1072 (1974). The issues and facts in this current appeal can better be understood if the facts and resolutions of the first two appeals are briefly recited. For purposes of simplicity, the two former appeals will be designated Nos. 1 and 2.

No. 1

National Bank of Washington v. Equity Investors, 81 Wash.2d 886, 506 P.2d 20(1973)

In 1968 a group of four Boeing Company engineers (G. E. Stein, J. M. Lancaster, L. N. Christian, Joseph F. Macdonald and his wife, Marilynn; hereafter the Macdonald group) owned two parcels of land in south Seattle. Macdonald group sold these parcels to Equity Investors on December During the course of construction, the bank used its own discretion in disbursing funds for the project. In October 1969, the bank discovered that it was exhausting the money faster then the rate of completion of the project. To rescue its position, the bank acquired guarantors. Later, there was a substitution of guarantors. In the second and final guaranty, the guarantors consisted of the following persons: Richard and Gloria Walsh, Brama Construction Company and Walter and Evelyn Stepnitz.

30, 1968 under a real-estate contract. Equity Investors began the process of developing the land into a 220-unit apartment complex. The builder was Brama Construction Company. One of the lumber suppliers was Columbia Wood Products, Inc. The financing institution was the National Bank of Washington (hereafter bank). Financing was to be made on three conditions: (1) Macdonald group's vendor's interest under the real-estate contract would be drafted in the form of a deed of trust (designating the Macdonald group as beneficiary); (2) Macdonald group's otherwise-prior interest would be subordinated to the security interest of the bank; and (3) Equity Investors would supply its interest in the property as security for a $1,850,000 loan from the bank. The bank was to take the security in the form of a first lien deed of trust designating it as beneficiary. The bank procured title insurance insuring the bank's first-lien position in the property. It developed that the agent of the title company preparing the subordination agreement neglected to caution the Macdonald group that the subordination was unconditional. (That omission later became the basis for one of the suits consolidated in the original appeal.) Further, the superior-lien position of the Columbia Wood Products' materialman's lien (found to exist in the second appeal) over the deed of trust held by the bank, has resulted in a separate suit on the title policy by the bank against Transamerica Title Insurance Company (hereafter Transamerica). It is this suit with which the guarantors-appellants are currently trying to consolidate this appeal.

By February 1970, the bank had only $107,000 remaining to complete a project with an estimated $350,000 cost overrun. Some six months earlier, Columbia Wood Products filed a claim of lien for materials delivered and unpaid for ($119,672). By February, Columbia Wood Products decided to foreclose on the lien and instituted proceedings. This, plus the inevitability of the cost overrun, prompted the bank to foreclose on the property, joining the guarantors in the foreclosure action. Walter Stepnitz died during the pendency of the action. Approximately one week before the date of trial, Stepnitz' estate in Minnesota was given service of process. Walter and Evelyn Stepnitz and Donald O. Julen, general administrator of the estate of Walter Stepnitz, are the guarantors-appellants in this case and will hereafter be designated as appellants or guarantors. In addition to the above actions, the Macdonald group, now realizing the unconditional nature of the subordination agreement they had signed, brought action against Transamerica, the escrow agent, alleging a breach of fiduciary duty and claiming that this breach caused a loss of priority in the foreclosure action to the Macdonald group's damage.

All the above actions were consolidated at trial, with the following resolution: (a) the bank's lien was held superior in priority to Macdonald group's and Equity Investors' interest in the property; (b) Columbia Wood Products' materialman's lien was held to be junior and inferior to the bank's total secured loan advanced for construction; (c) the guaranty agreement was held unenforceable for the reason that the bank and General Mortgage Investments had negligently administered the loan funds so as to impair the guarantors' security; (d) Transamerica was liable to the Macdonald group for $104,178.12, plus interest, costs and attorneys' fees; (e) the court held that it was without jurisdiction to enter judgment against the estate of Walter F. Stepnitz; and (f) the trial court refused to confirm the highest bid in the amount of $1.88 million submitted by the bank. Rather, the court set an upset price and indicated that it would confirm a bid of approximately $2.247 million

unless the bank would waive its deficiency judgment. In the first appeal to this court, the following reversals were made: first, the bank's interest was made junior to Columbia Wood Products' materialman's lien; second, Transamerica was found to be nonnegligent as a matter of law regarding the drafting of the subordination agreement; third, the guaranty was considered enforceable with the personam jurisdiction over the estate of Walter F. Stepnitz; and fourth, the upset price was affirmed.

No. 2

National Bank of Washington v. Equity Investors, 83 Wash.2d 435, 518 P.2d 1072(1974)

On remand, Macdonald group filed a motion with the trial court asking it to enter a judgment giving to Macdonald group an amount equal to its judgment on foreclosure prior to the judgment claimed by Columbia Wood Products. Macdonald group submitted that the decision in the first National Bank v. Equity Investors case, Supra, placing Columbia Wood Products ahead of the bank in participating in the foreclosure sale proceeds did not affect Macdonald group's priority as to Columbia Wood Products. The trial court granted the motion. Columbia Wood Products thereafter made application to this court for a writ of prohibition and stay of proceedings, contending that the distribution of the proceeds by the trial court was contrary to a fair interpretation of the Supreme Court's opinion in the earlier appeal. In response, this court entered a stay order. This court, on the second appeal, ruled in favor of Columbia Wood Products and reestablished Columbia Wood Products' priority over Macdonald group and the National Bank of Washington. Attorneys' fees were also reduced from $10,000 for each appeal to $5,000. On remand, the upset price was established and the computation of liabilities made. During that stage of the proceedings, the guarantors were found to be liable for deficiency judgment in the amount of $274,075.93, plus interest of $71,935.54. The priorities in foreclosure up to the The National Bank of Washington moved for entry of judgment against appellants for any loss suffered by them in the foreclosure proceedings. In response, appellants moved for consolidation of this action with the one commenced on May 24, 1974, in King County (Pacific National Bank v. Transamerica Title Ins. Co.) In the Transamerica case, the National Bank of Washington was claiming loss under the policy claims. Since Columbia Wood Products' lien was given priority over Equity Investors' deed of trust in the foreclosure action, the bank claimed that Transamerica must insure it from loss created by Columbia Wood Products' superiority. Initially, the trial court orally granted appellants' motion, reserving any decision on respondents' motion for judgment. Subsequently, the bank's motion for reconsideration of the consolidation issue and for entry of judgment against appellants was granted and a judgment entered accordingly.

position of the bank's loan of $1,850,000 are as follows: first, receiver's expenses amounting to $194,681.10, of which $99,000 consisted of tax expenses paid from money advanced the receiver by the bank at the mortgage sale; second, John Pearson, for work performed in the amount of $4,700.52; third, Columbia Wood Products in the amount of $165,082.24, plus interest; and fourth, National Bank of Washington, $2,089,511.55, plus interest.

CURRENT APPEAL

Appellants and National Bank of Washington petitioned this court for certiorari and jurisdiction was retained for a third appeal. Appellants appealed the dollar amount of the guaranty, claiming that Columbia Wood Products' lien and that portion of the receiver's expenses attributable to the bank's advance for property taxes, should, by the terms of...