Umpqua Bank v. Gunzel

• Decision Date: 25 March 2021
• Docket Number: No. 37400-9-III,37400-9-III
• Citation: 483 P.3d 796
• Parties: UMPQUA BANK, Respondent, v. Charles A. GUNZEL, III, and Ginelle F. Gunzel, husband and wife, Appellant.
• Court: Washington Court of Appeals

483 P.3d 796

UMPQUA BANK, Respondent,

v.Charles A. GUNZEL, III, and Ginelle F. Gunzel, husband and wife, Appellant.

No. 37400-9-III

Court of Appeals of Washington, Division 3.

FILED MARCH 25, 2021

Bret Jeffery Uhrich, Walker Heye Meehan & Eisinger PLLC, 1333 Columbia Park Trl. Ste. 220, Richland, WA, 99352-4713, for Appellant.

Daniel Andrew Brown, Sean Douglas Leake, Williams Kastner, 601 Union St. Ste. 4100, Seattle, WA, 98101-1368, for Respondent.

PUBLISHED OPINION

Fearing, J. ¶ 1 In an appeal wherein we apply Oregon law, the parties ask us to determine when a cause of action accrued, for purposes of the statute of limitations, against a guarantor of a commercial loan when the commercial borrower defaulted but made periodic payments thereafter. Did the limitation period commence to run on the first default by the borrower or did later payments by the borrower extend the commencement of the period? We base our decision on the language of the commercial guaranty, Oregon statutes, Oregon case law regarding application of the statute of limitations, Oregon law regarding waiver of protections under the statute of limitations, and Oregon public policy prohibitions against waiver. We hold that Oregon law invalidated the partial waiver of the protection of the statute of limitations found in the parties’ commercial guaranty. In turn, we conclude that the statute of limitations commenced on the first default by the borrower, and we direct judgment in favor of guarantor, Charles Gunzel.

FACTS

¶ 2 This appeal concerns a loan issued by Umpqua Bank to a corporation, Cornerstone Building Co., with Charles Gunzel personally guaranteeing the loan's payment. On June 27, 2007, Cornerstone borrowed $200,000 from Umpqua Bank. The maturity date for the entire debt, under the promissory note signed by Cornerstone, was May 28, 2009.

¶ 3 Also on June 27, 2007, Charles Gunzel, the president and owner of Cornerstone, executed a commercial guaranty, under which Gunzel guaranteed Cornerstone's payment and performance of the $200,000 indebtedness to Umpqua Bank. Gunzel had guaranteed earlier extensions of credit by Umpqua Bank to Cornerstone. The June 2007 commercial guaranty was on a pre-printed form supplied by Umpqua Bank and prepared and copyrighted by an entity that supplies forms for financial institutions.

¶ 4 The commercial guaranty signed by Charles Gunzel expressed that Oregon law governed the agreement. The guaranty required that Gunzel, in the event of Cornerstone's default, fully and timely repay any remaining indebtedness and required that Gunzel remain liable indefinitely:

THIS IS A "CONTINUING GUARANTY" UNDER WHICH GUARANTOR AGREES TO GUARANTEE THE FULL AND PUNCTUAL PAYMENT, PERFORMANCE AND SATISFACTION OF THE INDEBTEDNESS OF BORROWER TO LENDER, NOW EXISTING OR HEREAFTER ARISING OR ACQUIRED, ON AN OPEN AND CONTINUING BASIS.

....

This Guaranty will take effect when received by Lender without the necessity of any acceptance by Lender, or any notice to Guarantor or to Borrower, and will continue in full force until all the Indebtedness incurred or contracted before receipt by Lender of any notice of revocation shall have been fully and finally paid and satisfied and all of Guarantor's other obligations under this Guaranty shall have been performed in full .

Clerk's Papers (CP) at 70 (emphasis added).

¶ 5 Under the June 2007 commercial guaranty, the statute of limitations to be applied on any suit brought by Umpqua Bank against Charles Gunzel would in essence be the same as the statute of limitations imposed on any suit brought by Umpqua Bank against Cornerstone for the principal debt owed:

Guarantor also waives any and all rights or defenses based on suretyship or impairment of collateral including, but not limited to, any rights or defenses arising by reason of ... any statute of limitations, if at any time any action or suit brought by Lender against Guarantor is commenced, there is outstanding indebtedness which is not barred by any applicable statute of limitations .

CP at 71 (emphasis added). The guaranty further read:

Guarantor warrants and agrees that each of the waivers set forth above is made with Guarantor's full knowledge of its significance and consequences and that, under the circumstances, the waivers are reasonable and not contrary to public policy or law . If any such waiver is determined to be contrary to any applicable law or public policy, such waiver shall be effective only to the extent permitted by law or public policy.

CP at 71 (emphasis added). Finally, both the June 2007 loan agreement and commercial guaranty afforded Umpqua Bank reasonable attorney fees and costs incurred when enforcing the respective agreements.

¶ 6 On May 28, 2009, the maturity date of the promissory note, Cornerstone defaulted on its obligations by failing to pay the note in full. On June 30, 2009, Cornerstone's shareholders voted to dissolve the corporation. Nevertheless, the defunct corporation periodically made payments on the loan until December 16, 2013. As of Cornerstone's final payment, the balance of the loan's principal was $185,214.

¶ 7 In its brief, Umpqua Bank repeatedly claims that Charles Gunzel personally made the payments after May 28, 2009. Nevertheless, it cites to no portion of the record to support this factual allegation. The records provided by Umpqua Bank indicate that payment was applied to Cornerstone's debt and does not specify any payment from Gunzel. We recognize that a defunct corporation could still maintain a bank account and make payments from that account. Although a bank will likely require a corporation, at the time it opens an account, to prove the existence of the corporation, the bank will likely not require periodic proof of the ongoing existence of the corporation. In a declaration, Charles Gunzel avers that Cornerstone, not he, tendered the late payments to Umpqua Bank. Umpqua Bank does not controvert this testimony.

PROCEDURE

¶ 8 On March 28, 2019, more than nine years after Cornerstone's default, Umpqua Bank brought suit against Charles Gunzel to enforce the personal guaranty for Cornerstone's debt. Umpqua Bank sought to recover the principal amount of $185,214.00, interest totaling $72,177.84, interest thereafter at $28.30 per day beginning March 25, 2019, and late charges in the amount of $194.21.

¶ 9 Charles Gunzel moved for summary judgment on the basis of the statute of limitations. He argued that, under Oregon law: (1) the statute of limitations on a personal guaranty is independent from any underlying obligation, (2) the six-year statute of limitations accrued on May 28, 2009, when Cornerstone's loan matured without payment and he thereby became obligated to pay the debt, (3) Cornerstone's period payments thereafter did not recommence the statute of limitations since Gunzel remained in default under his guaranty, (4) the waiver of the statute of limitations defense under his guaranty agreement with Umpqua Bank violated public policy, and (5) the statute of limitations bars Umpqua's suit because the bank sued after May 28, 2015. The trial court denied Charles Gunzel's motion.

¶ 10 Umpqua Bank moved for summary judgment. The trial court granted Umpqua's motion and entered judgment in Umpqua Bank's favor in the amount of $265,045.99. The trial court also granted Umpqua Bank's request for reasonable attorney fees and costs.

LAW AND ANALYSIS

¶ 11 On appeal, we must answer four discrete questions. First, under Oregon law, when does the statute of limitations begin to accrue on the obligation of the guarantor of a loan when the underlying debtor defaults but later tenders payments, but in the meantime the guarantor tenders no payments? Second, did the commercial guaranty between Umpqua Bank and Charles Gunzel alter the date of the accrual of the Oregon statute of limitations? Third, if the answer to question two is yes, was that alteration in the form of a waiver? Fourth, did Oregon public policy prohibit the commercial guaranty from modifying the accrual date of the statute of limitations? We address these questions in such order.

Statute of Limitations on a Guaranty

¶ 12 The parties agree that Oregon law controls application of the statute of limitations and that six years is the limitation period to apply to Umpqua Bank's claim against Charles Gunzel on the guaranty. The parties disagree as to the date of accrual of the cause of action. Gunzel contends the action accrued when Cornerstone first defaulted on the loan on May 28, 2009. Umpqua Bank wishes to start the commencement of the running of the limitation period when Cornerstone tendered its last payment on December 16, 2013.

¶ 13 Under an Oregon statute, the statute of limitations for a breach of contract is six years. OR. REV. STAT. (ORS) § 12.080(1). In turn, under another Oregon statute, the limitation period on a debt owed does not commence until the last payment made by the borrower.

Whenever any payment of principal or interest is made after it has become due, upon an existing contract, whether it is a bill of exchange, promissory note, bond, or other evidence of indebtedness, the limitation shall commence from the time the last payment was made.

ORS § 12.240.

¶ 14 Charles Gunzel argues that the delay of the accrual date resulting from a late payment only applies to the underlying note on the loan, under the language of ORS § 12.240, and not to any guaranty of the debt. The statute does not mention that the limitation period on any guaranty is extended by reason of a late payment, although the Oregon statute mentions "other evidence of indebtedness." Gunzel contends that Oregon case law stands for the proposition that the underlying loan agreement and the guaranty of the debt are distinct contracts and, therefore, the accrual date on the statute of limitations for each discrete contract are different. We agree.

¶ 15 Charles Gunzel emphasizes Eustis v. Park-O-Lator Corp. , 249 Or. 194, 435 P.2d 802, 437 P.2d 734 (1967). Defendants Abe and Sara Zaha...