Wartenburg Trust v. Elrod, No. 54685-6-I (WA 12/19/2005)
| Decision Date | 19 December 2005 |
| Docket Number | No. 54685-6-I,54685-6-I |
| Court | Washington Supreme Court |
| Parties | WARTENBURG TRUST, Respondent, v. JERRY R. ELROD and ANNE ELROD, husband and wife, and the marital community composed thereof, GORILLA FIREWORKS LTD., a British Columbia registered corporation, Appellant. |
Appeal from Superior Court of Whatcom County. Docket No: 04-2-00744-1. Judgment or order under review, Date filed: 07/28/2004. Judge signing: Hon. David a Nichols.
Counsel for Appellant(s), Blair Baker Burroughs, Lawler Burroughs & Baker PC, 1001 4th Ave Ste 4400, Seattle, WA 98154-1192.
Counsel for Respondent(s), Douglas Kevin Robertson, Belcher Swanson Lackey Doran Lewis et al, Battersby Proffesional Bldg, 900 Dupont St, Bellingham, WA 98225-3105.
Jeffery James Solomon, Belcher Swanson et al, 900 Dupont St, Bellingham, WA 98225-3105.
Jerry and Anne Elrod appeal the trial court's decision on summary judgment that they are liable under the `Personal Guarantee' (the Guaranty) to pay the debt owed by Gorilla Fireworks Ltd., a British Columbia corporation (Gorilla), to The Wartenburg Trust (the Trust). We conclude the Elrods did not carry their burden to rebut the existence of Gorilla's debt to the Trust, but because material issues of fact exist about whether sufficient consideration supports the Guaranty preclude summary judgment, we reverse and remand for trial.
While Anne Elrod is the president, director, and majority shareholder of Gorilla, she was not involved in the day-to-day operations of the company. Anne Elrod's spouse, Jerry Elrod, who has no official position in Gorilla, was actively involved in overseeing the business. Ray von Proctor and the Elrods were friends for approximately 20 years. In the 1990's, von Proctor began working at Gorilla.
In the late 1990's, von Proctor became the Secretary/Treasurer and the Operations Manager of Gorilla and was responsible for the company's day-to-day operations and the finances. Jerry Elrod testified he and von Proctor had regular contact once a week and von Proctor would periodically provide a breakdown of Gorilla's financial situation. In addition to being the Operations Manager and Secretary/Treasurer of Gorilla, von Proctor was also the sole owner and shareholder of International Fireworks of Washington (IFW), a Washington corporation established to pay Gorilla's U.S. debts. Von Proctor testified that the Elrods frequently loaned money to Gorilla and that by 2003 the Elrods' personal loans to Gorilla totaled approximately $1.4 million. According to von Proctor, in 1996 or 1997, when the Elrods were engaged in another business venture and were unable to loan money to Gorilla, he told Jerry Elrod he had family financial resources and offered to loan money. Thereafter, von Proctor and his mother made numerous loans to Gorilla. Von Proctor testified these loans were repaid.
According to the corporate records von Proctor kept, during a three year period beginning in the Spring of 2000, von Proctor, as Trustee of his family's trust, loaned over $100,000 to Gorilla.1 When von Proctor, as the Trustee, loaned money to Gorilla and on behalf of the Trust, he drafted and signed a promissory note as Secretary/Treasurer and Operations Manager of Gorilla. The Elrods' claim they did not know about the Trust loans when they were first made, but became aware of them late in 2000.2
In the Fall of 2003, von Proctor decided to consolidate the approximately twenty separate promissory notes to the Trust that he had drafted and executed on behalf of Gorilla. On September 3, 2002, von Proctor, drafted and signed a promissory note with a principal balance of $110,315 on behalf of Gorilla in favor of the Trust. The September 3 promissory note consolidated the prior loans von Proctor made from the Trust. Three days later, on September 6, 2002, Jerry and Anne Elrod signed a `Personal Guarantee' (Guaranty) that von Proctor drafted.3 In the Guaranty, the Elrods agreed to be personally liable for the sums owed by Gorilla to the Trust under the consolidated promissory note. The Guaranty states in pertinent part:
For valuable consideration, Guarantor unconditionally and irrevocably guaranties {sic} to pay or perform for The Wartenburg Trust all obligations of Borrower under the foregoing Note. If Borrower shall be in default under the Note, Guarantor agrees, upon demand, to pay any sums that Borrower is liable for {there under} and carry out all covenants on the part of Borrower to be performed. The duty of Guarantor to perform is primary and independent of the duties of Borrower, and other guarantors of any other person.
According to Jerry Elrod, when the Elrods signed the Guaranty, he told von Proctor to not loan any more money to Gorilla. But in the year following execution of the September 3 consolidated note and the Guaranty, von Proctor drafted and signed five other promissory notes for additional loans from the Trust to Gorilla totaling approximately $35,000
Gorilla continued to make payments to the Trust through November 2003. In 2003, von Proctor left Gorilla. Shortly thereafter, the Trust demanded payment from Gorilla and the Elrods for the balance due under the promissory notes. Jerry Elrod reviewed Gorilla's financial records to try and determine how much money was owed. Because the records were incomplete, Jerry Elrod contacted von Proctor. Von Proctor gave the Elrods what he represented were the complete financial and business records of Gorilla. Because the Elrods were still unable to determine whether Gorilla received money loaned from the Trust and whether the borrowed money was used for legitimate corporate purposes, they refused to pay.
On April 12, 2004, the Trust filed a lawsuit against Gorilla and the Elrods for collection on the promissory notes. On April 29, 2004, the Trust filed a motion for partial summary judgment against the Elrods on the Guaranty. In response, the Elrods asked the court to deny the motion or in the alternative grant a continuance for three weeks to conduct discovery.4 Von Proctor was deposed on May 18, 2004.
On May 28, 2004, the trial court granted the Trust's motion for partial summary judgment against the Elrods on the Guaranty. On July 28, the court entered a final order and judgment against the Elrods for approximately $125,000 in principal and interest due under the consolidated promissory note. The court also awarded the Trust $16,000 in attorney fees, administrative expenses, and costs. The Elrods appeal.
The Elrods contend summary judgment was improperly granted because there are genuine issues of material fact concerning whether Trust loans were spent on Gorilla's behalf and whether the Guaranty was supported by consideration.
Because this is a review of summary judgment, we consider the facts and all reasonable inferences in the light most favorable to the nonmoving party. Right-Price Recreation, LLC. v. Connells Prairie Comty. Council, 146 Wn.2d 370, 381, 46 P.3d 789 (2002). Summary judgment is properly granted when the pleadings and affidavits show there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. CR 56(c). Only when reasonable minds could reach but one conclusion on the evidence, should the court grant summary judgment. Smith v. Safeco Ins. Co., 150 Wn.2d 478, 78 P.3d 1274 (2003). A court should not resolve a genuine issue of credibility on summary judgment. Howell v. Spokane & Inland Empire Blood Bank, 117 Wn.2d 619, 626, 818 P.2d 1056 (1991).
A guaranty is a binding collateral promise to answer for the debt or default of another. Wilson Court Ltd. Pshp. v. Tony Maroni's, Inc. 134 Wn.2d 692, 707, 952 P.2d 590 (1998). Because a guaranty is a collateral undertaking to perform for another, it must import the existence of an obligation by the principal debtor. Robey v. Walton Lumber Co., 17 Wn.2d 242, 255, 135 P.2d 95 (1943). Therefore, if the primary or principal obligation does not exist, a guaranty is unenforceable. See Id. ().
On summary judgment, as proof of the principal debt owed by Gorilla, the Trust submitted the consolidated promissory note signed on September 3, 2002 and the Guaranty signed on September 6, 2002. In opposition, the Elrods testified that they had no personal knowledge about `whether Gorilla Fireworks did, in fact, receive these loans.' Jerry Elrod described his efforts to review the corporate records for Gorilla provided by von Proctor and his unsuccessful attempts to verify Gorilla's receipt of the money loaned by the Trust. Based on review of Gorilla's corporate records, Jerry Elrod raised questions and pointed out some discrepancies. In reply, von Proctor submitted additional financial documentation, including the underlying promissory notes for the consolidated note, cancelled checks and deposit records, to show the loans were made from the Trust to Gorilla. While the Elrods generally raised concerns in the record below about whether the loans from the Trust were made on behalf of Gorilla, the Elrods presented no specific facts to support their position or to contradict the Trust's evidence showing the loans were made to Gorilla. The Elrods', as the non-moving party, had the burden to set forth specific facts sufficient to rebut the moving party's contentions and show there are genuine issues of material fact. Price v. City of Seattle, 106 Wn. App. 647, 657, 24 P.3d 1098 (2001). On this record, the Elrods failed to carry their burden to rebut the existence of the underlying debt owed by Gorilla to the Trust. On appeal, the Elrods rely on the review of Gorilla's financial records by Evin Morris, a Certified Public Accountant (CPA), to cite specific examples showing that the money borrowed from the Trust...
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