Nichols Hills Bank v. McCool

• Court: Washington Supreme Court
• Writing for the Court: DURHAM; DOLLIVER
• Citation: Nichols Hills Bank v. McCool, 104 Wn.2d 78, 701 P.2d 1114 (Wash. 1985)
• Decision Date: 27 June 1985
• Docket Number: No. 51168-3
• Parties: NICHOLS HILLS BANK, an Oklahoma Banking Corporation, Appellant, v. Richard M. McCOOL, Jr. and Jane Doe McCool, husband and wife, Respondents.

Page 78

104 Wn.2d 78

701 P.2d 1114

NICHOLS HILLS BANK, an Oklahoma Banking Corporation, Appellant, v. Richard M. McCOOL, Jr. and Jane Doe McCool, husband and wife, Respondents.

No. 51168-3.

Supreme Court of Washington En Banc.

June 27, 1985.

Bishop, Cunningham, Hartman & Beattie, Robert T. Beattie, Jr., Bremerton, for appellant.

George C. Nickum, Jr., Bainbridge Island, for respondents.

DURHAM, Justice.

Nichols Hills Bank appeals from a trial court judgment dismissing its claim against the marital community of Richard McCool, Jr. and Carole Elaine McCool. The bank contends the trial court erred by finding that: (1) Carole McCool did not ratify, authorize or consent to a guaranty agreement signed by her husband, (2) the bank could not reach Richard McCool's one-half interest in the McCool community property, and (3) the guaranty agreement precluded the bank from obtaining a lien on the McCool family residence.

In September 1979, Richard McCool III, the son of Richard McCool, Jr., and Carole McCool, owed approximately $8,000 to Nichols Hills Bank and an additional $8,000 to other lenders. As a result, McCool III met with Homer Paul, President of Nichols Hills Bank, to obtain an additional loan and consolidate his debts. Paul refused to make an additional loan unless McCool III could obtain a guarantor. McCool III then telephoned his parents and discussed his financial situation with them. He talked with both his mother and father, but specifically asked his father to contact Paul. After the conversation with their son, McCool, Jr. and his wife discussed the various alternatives through which they could help McCool III. At trial, McCool, Jr. stated that the substance of the conversation consisted of "my suggesting various courses of action and my wife objecting to them." Nonetheless, McCool, Jr. telephoned Paul and agreed to act as a guarantor. McCool, Jr.'s uncontested testimony regarding the events that transpired immediately after the conversation was as follows:

I went upstairs and told her that I had told Mr. Paul I would sign the guarantee, and her immediate reaction was strong, and it was negative and emotional. She went into another room. We didn't speak for some time, and in short, she led me to believe that she totally disapproved of what I had said.

Pursuant to the telephone conversation, Paul mailed McCool, Jr. a guaranty agreement and a financial statement form on which McCool, Jr. was to list his assets and liabilities. McCool, Jr. provided the requested information and signed the agreement.

Carole McCool did not sign the guaranty agreement. In fact, she had absolutely no contact with Nichols Hills Bank personnel. After the telephone conversation between Paul and her husband, however, she knew that her husband was going to sign the agreement and complete the financial statement form. She may have assisted him by typing the financial information onto the form. In addition, she did not attempt to inform the bank of her objections to the agreement.

After receiving the signed guaranty agreement, the attached letter and the completed financial statement form, Paul approved McCool III's request for a loan. Subsequently, McCool III defaulted on his loan and the bank obtained a judgment against him. McCool III, however, filed for bankruptcy and his debt was discharged. Nichols Hills Bank then instituted an action against Richard McCool, Jr., individually, and the marital community of Richard McCool, Jr. and Carole McCool, to recover the balance owed by McCool III.

The trial court entered judgment against Richard McCool, Jr., separately, but dismissed the claim against the marital community. In addition, the trial court found that the terms of the guaranty agreement precluded a judgment lien from being placed on the family home.

From the trial court's dismissal of the claim against the marital community, Nichols Hills Bank appeals.

I

The bank's first contention on appeal is that Carole McCool expressly or impliedly consented to guarantee her son's debt to Nichols Hills Bank. RCW 26.16.030(2) specifically prohibits either spouse from giving away community property without the express or implied consent of the other ¹. In a ruling consistent with Washington law, the trial court found that because the McCool suretyship obligation was created solely out of parental affection, the obligation is a gift of community credit which does not become a community obligation unless both parties expressly or impliedly consented. See, e.g. Bank of Washington v. Hilltop Shakemill, Inc., 26 Wash.App. 943, 949-50, 614 P.2d 1319 (1980); Sun Life Assur. Co. v. Outler, 172 Wash. 540, 544, 20 P.2d 1110 (1933). Neither party contests this finding and our task is, therefore, limited to reviewing the trial court's determination that Carole McCool did not consent to the guaranty agreement.

The consent of a spouse to a transaction is a factual determination to be evaluated from the circumstances of each case. Bowman v. Hardgrove, 200 Wash. 78, 93 P.2d 303 (1939). In reviewing questions of fact, our role is limited to determining whether substantial evidence exists to support the trial court's findings. Ridgeview Properties v. Starbuck, 96 Wash.2d 716, 719, 638 P.2d 1231 (1982). "Substantial evidence is evidence in sufficient quantum to persuade a fair-minded person of the truth of the declared premise." Holland v. Boeing Co., 90 Wash.2d 384, 390-91, 583 P.2d 621 (1978). Here, the trial court's finding that Carole McCool did not consent to the guaranty agreement is supported by substantial evidence. McCool, Jr. testified that after he and Carole spoke with their son, they could not agree on a course of action. Neither McCool, Jr. nor Paul ever asked Carole McCool to agree to a guaranty arrangement. When Carole was informed of the arrangement, she clearly expressed her opposition to her husband. She testified, however, that she felt powerless to stop the transaction. Although she may have assisted her husband by typing financial information onto the form provided by the bank, this action, when viewed in the context of the entire transaction, does not constitute consent.

Nonetheless, the bank argues that Carole McCool consented as a matter of law to the guaranty agreement because she knew her husband had agreed to it and she made no attempt to inform the bank of her disapproval. In essence, the bank argues that knowledge of a transaction is equivalent to consent thereto. This unique argument is without merit. RCW 26.16.030(2) specifically uses the word "consent" in determining when a gift of community property becomes a community obligation. We refuse to encroach on the province of the Legislature by judicially substituting a less restrictive knowledge requirement for a statutorily-specified consent requirement. Not only would we do violence to a specific statute by adopting the bank's analysis, we would also undermine a core purpose of the community property laws. The bank's interpretation would enable one spouse to give away an entire estate in derogation of the interest of the non-acting spouse who knew of but felt powerless to halt the transfer. Thus, we adhere to the legislatively-pronounced consent requirement. Because the trial court's finding of lack of consent is amply supported by the record, we affirm that determination.

Nichols Hills Bank next maintains that even if this court finds that Carole McCool's actions did not constitute consent, the community has nonetheless incurred a debt to the bank because Carole McCool authorized and ratified her husband's transaction. Because the concepts of authorization and ratification are analytically distinct, they will be explored separately.

Essentially a species of consent, authorization occurs when one spouse, prior to the initiation of a transaction, indicates his willingness to allow the other to enter into a transaction. See Short v. Dolling, 178 Wash. 467, 475, 35 P.2d 82 (1934). We have consistently held, however, that the delegation of authority to manage community property does not cloak the managing spouse with authority to enter into a transaction that specifically requires the involvement of both parties. Marston v. Rue, 92 Wash. 129, 131, 159 P. 111 (1916); Benedict v. Hendrickson, 19 Wash.2d 452, 455, 143 P.2d 326 (1943). Thus, although Carole McCool may have authorized her husband to manage their community assets, she did not provide him with the authority to enter into the guaranty agreement with the bank.

Nichols Hills Bank cites Daily v. Warren, 16 Wash.App. 726, 558 P.2d 1374 (1977) ² to support its contention that Carole McCool authorized her husband to enter into a guaranty agreement. The facts of that case, however, are easily distinguishable. In Daily, the husband entered into a purchase contract for a tavern without obtaining his wife's signature. In finding that the wife's manifestations of consent fulfilled the statutory joinder requirement, the court essentially focused on six indicia of participation and approval: (1) the wife knew that the husband was interested in purchasing a tavern, (2) she inspected the tavern with an eye to approve or disapprove the transaction, (3) she had exercised her right to approve or disapprove in the past, (4) she specifically expressed approval, (5) she approved the use of community funds, and (6) she was well acquainted with the details of the transaction. Daily, at 731, 558 P.2d 1374.

Here, prior to her husband's conversation with Paul, Mrs. McCool did not know he was entering into a guaranty arrangement. When she learned of the arrangement, she did not express approval. Nor did she approve the use of community funds. She had never vetoed a financial transaction of her husband's in the past and did not believe she could do so. Finally, she was not well acquainted with the details of the transaction. The facts of this case do not support the bank's contention that Mrs. McCool authorized the...