Bus. Fin. Corp. v. Knoll

BUSINESS FINANCE CORP., a Washington corporation, Respondent, v. VICTORIA KNOLL, THE ESTATE OF CRAIG KNOLL; THE UNKNOWNHEIRS OF CRAIG KNOLL, deceased; CONSTRUCTION MATERIALS INC.,NORTHWEST, an inactive Washington Corporation; TRUSERV CORP., aDelaware corporation; JERRY V. KNOLL Individually, and the MARITALCOMMUNITY OF JERRY V. AND JANE DOE KNOLL; KNOLL GREENWATERLLC, a Washington limited liability company; STATE OF WASHINGTON,DEPARTMENT OF REVENUE, STATE OF WASHINGTON, DEPARTMENT OFLICENSING; INTERNAL REVENUE SERVICE OF THE UNITED STATES OFOF AMERICA and JOHN DOES 1-25, Appellants.

No. 73407-5-I

COURT OF APPEALS FOR THE STATE OF WASHINGTON DIVISION ONE

May 23, 2016

UNPUBLISHED OPINION

SPEARMAN, J. — Jerry Knoll appeals the trial court's ruling that Business Finance Corporation (BFC) has the right to foreclose on real property owned by the Estate of Lorna Knoll. He asserts that the trial court erred in finding that the Estate was a grantor under the deed of trust and in concluding that the deed was valid and enforceable. Finding no error, we affirm.

FACTS

Lorna Knoll and her sons Craig and Jerry¹ owned four parcels of recreational property in Greenwater, Washington. The properties are referred to in this action as parcels A, B, C, and D. Lorna owned several other properties and also owned a substantial share of the family business, Knoll Lumber and Hardware. Craig served as the chief executive officer of Knoll Lumber and managed its operations. Jerry lived in Alaska. He owned a portion of Knoll Lumber but did not have an active role in the family business.

Lorna died in 1998. Lorna's will named Craig and Jerry co-executors of her estate. The will specified that if either co-executor was unable or ceased to act the other was to act as sole executor. Craig and Jerry submitted Lorna's will to probate and were appointed co-personal representatives of her estate.² Craig acted as the primary manager of the estate. The estate remained open for the next several years.

Lorna's estate owned 64 percent of Greenwater parcels A and B and 100 percent of parcel D. Her will devised this interest to Craig and Jerry in equal shares. Craig and Jerry each owned 18 percent of parcels A and B. Craig and his wife Victoria owned 100 percent of parcel C. Parcel C is not at issue in this case.

In 1999, Craig obtained financing for Knoll Lumber from BFC. Under a loan and security agreement, BFC agreed to advance up to $1.5 million to Knoll Lumber. Craig and Victoria personally guaranteed the loan. They granted BFC a security interest in their personal residence and in several other properties, including Greenwater parcels A, B, C, and D. The properties securing the loan are listed in an attachment to the loan agreement. Some of the listed properties were owned entirely by Craig and Victoria while others were owned in whole or in part by Lorna's estate.

As further collateral under the loan agreement, Craig and Victoria executed deeds of trust. The first paragraph of the deed of trust encumbering the Greenwater parcels states that the deed is executed by "CRAIG T. KNOLL and VICTORIA W. KNOLL, husband and wife, as to Parcel C and their undivided interest in Parcels A, B and D. . . ." Clerk's Papers (CP) at 30. The deed states that the grantors "hereby bargain, sell and convey" parcels A, B, C, and D to BFC. The signature block at the end of the deed identifies "The Estate of Lorna L. Knoll" as a grantor. The language following Craig's signature states that he signed as "Personal Representative of the Estate of Lorna L. Knoll and Individually." CP at 34.

Knoll Lumber filed bankruptcy in March 2000. The business had no assets and the bankruptcy was abandoned. Craig and Victoria, as personal guarantors of Knoll Lumber's obligation, executed two promissory notes to BFC. The promissory notes were secured by the previously executed deeds of trust. Craigand Victoria defaulted on the promissory notes and declared bankruptcy in December 2001.

Jerry brought an adversary action against Craig and Victoria in bankruptcy court. Jerry asserted that Craig, with Victoria's help, had fraudulently transferred property belonging to Lorna's estate and breached fiduciary duties to the estate. Jerry sought an accounting, an injunction prohibiting Craig from transferring further estate property, and payment of his portion of Lorna's estate.

In their answer to Jerry's complaint, Craig and Victoria alleged that they had fully informed Jerry of the transactions with BFC and Jerry did not object. Craig and Victoria asserted that they had encumbered only their own property or property they had authority to encumber. They also alleged that Jerry had neglected and abandoned any role in managing Lorna's estate.

Jerry settled with Craig and Victoria in June 2002. Under the settlement, the parties agreed that Lorna's estate owned Greenwater parcels A and B. Craig and Victoria agreed to remove all encumbrances from those parcels and transfer them to a limited liability company (LLC) in which Craig and Jerry would own equal shares. The settlement was later amended to include parcel D.

Craig died soon after reaching the settlement with Jerry. At the time of his death, Lorna's estate was still open. The Greenwater parcels were still encumbered and had not been transferred into an LLC.

BFC pursued litigation against Victoria seeking payment on the obligation. BFC and Victoria reached a settlement agreement that was approved by the bankruptcy court in March 2003. The agreement discounted Victoria's totalobligation to BFC and set new interest and repayment terms. Victoria filed a plan of reorganization with the bankruptcy court in July 2003. The plan allowed Victoria seven months to market various pieces of real property and pay her debt to BFC from the proceeds. If not paid within seven months, BFC had the right to foreclose against the secured properties.

Victoria paid BFC a portion of her debt and in May 2004 the bankruptcy court set her obligation to BFC at $162,182.61. BFC received a payment of $10,000 in May 2004 and a payment of $32,800 in January 2005. BFC received no payments after January 2005.

In May 2010, BFC brought this action to foreclose on Craig's interest in the Greenwater parcels and on the estate's 64 percent interest in parcels A and B and 100 percent interest in parcel D. Jerry defended, arguing that BFC did not have the right to foreclose on property owned by Lorna's estate. The case proceeded to a bench trial in December 2014. The dispute turned on whether Lorna's estate was a grantor under the deed of trust and, if so, whether Craig had authority to encumber estate property without the consent of Jerry as co-personal representative.

BFC argued that Lorna's estate was a grantor. In addition to the language of the deed and the related loan agreement, BFC relied on the pleadings in the adversary action between Craig and Jerry. BFC further argued that Craig was authorized to act as sole personal representative of the estate because Jerry was not a Washington resident and had never appointed a resident agent.

Jerry argued that Lorna's estate was not a grantor under the deed of trust. He argued that the plain language of the deed indicated that Jerry assigned only his own interest. He also argued that, even if Craig intended to pledge estate property, he had no authority to do so without Jerry's approval as co-personal representative.

As support, Jerry relied on the deed of trust conveying another estate property to BFC. The Monroe Farm deed, which was executed about the same time as the Greenwater deed, identifies the Estate of Lorna Knoll as a grantor in the first paragraph and is signed by both Craig and Jerry as co-personal representatives. Jerry argued that the Monroe deed demonstrates that BFC was aware that Craig was only one of two co-personal representatives and that Craig lacked authority to pledge estate property without Jerry's consent. Jerry also contended that BFC's claim was time barred. He argued that the three-year statute of limitations applied because BFC introduced parol evidence to prove an essential term of the contract.

At the close of evidence, Jerry moved to dismiss, arguing that BFC's action was time barred even under the six-year statute of limitations. Jerry argued that BFC did not present sufficient evidence to prove that Victoria voluntarily made a payment in January 2005 and thus tolled the statute of limitations. The trial court denied the motion.

The trial court found that the estate was a grantor under the deed of trust. The court concluded that Craig was the only qualified personal representative of Lorna's estate and that his signature as personal representative was legallysufficient to bind the estate. The court also concluded that the six-year statute of limitations applied and BFC's claim was not time barred. The court thus ruled that BFC had the right to foreclose on the estate's interest in parcels A, B, and D. Jerry appeals.

DISCUSSION

Jerry challenges the trial court's finding that Lorna's estate was a grantor under the deed of trust. We review findings of fact for substantial evidence and review conclusions of law de novo. Sunnyside Valley Irr. Dist. v. Dickie, 149 Wn.2d 873, 879-80, 73 P.3d 369 (2003). Interpretation of a deed of trust is a mixed question of fact and law. Niemann v. Vaughn Community Church, 154 Wn.2d 365, 374, 113 P.3d 463 (2005). In construing a deed, our aim is to give effect to the intent of the parties. Id. (citing Harris v. Ski Park Farms, Inc., 120 Wn.2d 727, 739, 844 P.2d 1006 (1993)). The intent of the parties is a question of fact, the legal consequences of that intent are a question of law. Id. (citing Veach v. Culp, 92 Wn.2d 570, 573, 599 P.2d 526 (1979)). If the language of the deed is ambiguous, we may consider extrinsic evidence to determine the parties' intent. Id.

Jerry argues that the trial court drew a conclusion of law in determining that Lorna's estate was a grantor. But...