David & Bonita Ebenal v. Ellen B. Klyce & Thomas C. Dashiell ( 2016 )

IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON
ELLEN B. KLYCE, a single individual;
and THOMAS C. DASHIELL, a single No. 74535-2-1
individual,
CT"4
DIVISION ONE
CD
Respondents,
I
UNPUBLISHED OPINION
v.
DAVID EBENAL and BONITA EBENAL,
husband and wife, and their marital CO
community,
FILED: November 7, 2016
Appellants.
Leach, J. — David and Bonita Ebenal appeal a trial court's decision granting
summary judgment in favor of Thomas Dashiell and Ellen Klyce on two promissory notes
signed by the Ebenals. They claim that they entered into an oral agreement with Dashiell
in which he waived his right to enforce the terms of the notes. Because the Ebenals'
alleged agreement does not satisfy the applicable California statute of frauds,1 their
waiver defense fails. We affirm.
FACTS
On November 24, 2013, David and Bonita Ebenal signed two promissory notes:
one for $542,500 payable to Ellen Klyce and one for $232,500 payable to Lillian Dashiell.
1 Cal. Civ. Code, § 1624.
No. 74535-2-1/2
A deed of trust secured both notes. Itgranted Klyce and Dashiell security interests infour
houses.2 Collateral security interests in two limited liability companies (LLCs) also
secured the notes. The notes each state,
This Note is secured by a Mortgage or Deed of Trust encumbering four
houses, and by a collateral security interest in a $775,000 Preferred Interest
in Hunter Hospitality LLC (the "LLC") and a collateral security interest in
Pompano LLC, which is a 40% Member of LLC. The foregoing collateral
secures this Note and a $542,500 Note executed by Borrower and payable
to Ellen Byrd Klyce. Upon sale by the LLC of the real property owned by it
in Pompano, Florida, this Note shall be due and payable in full, and must
be paid off from the proceeds which will be paid by the LLC to the Preferred
Interest. In addition, all principal and accrued but unpaid interest on this
Note shall be due and payable not later than December 31, 2014.
Each note bore interest at the rate of 12 percent per year. The interest rate increased to
15 percent ifthe note was not paid in full on or before the maturity date. The notes stated
that they are "governed by California law."
The Pompano, Florida, property sold in July 2014, but the proceeds remained tied
up in litigation through the following year.3 As a result, the Ebenals failed to pay the two
notes when due, December 31, 2014. On May 15, 2015, Lillian Dashiell assigned the
$232,500 note to her father, Thomas Dashiell.
2The record does not contain a copy of the deed of trust.
3 In their brief, the Ebenals explain that the action "arose out of a deal to transfer a
claim in the receivership of Hunter Hospitality, LLC," involving a convertible preferred
interest valued at $775,000. Ebenal purchased the claim from one of the LLC's creditors
and subsequently offered to sell it to Klyce and Lillian Dashiell. According to the Ebenals,
they structured the deal as "a recourse loan .. . payable under two promissory
notes . . . secured by and required to be paid from the $775,000 preferred interest claim,
and which were callable against Appellants only if the Receiver had not paid out on the
preferred-interest claim by December 31, 2014." The record does not contain any
documents from the receivership or any other litigation related to the property in question.
-2-
No. 74535-2-1 / 3
Klyce and Dashiell filed a lawsuit to collect the notes on June 17, 2015. The
Ebenals answered the complaint, alleging that collection at the time was barred by the
equitable defenses of waiver, estoppel, or laches. According to the Ebenals, four days
before they filed their answer, the parties had orally agreed to extend "the maturity date
on these notes" until June 1, 2016. In exchange, the Ebenals agreed to give Dashiell full
access to their attorney "so they could work together on what and when to file in the
Pompano case."
Klyce and Dashiell moved for summary judgment on their claim. The trial court
granted the motion. The Ebenals appeal.
ANALYSIS
The Ebenals raise only one issue on appeal, whether the California statute of
frauds prevents an oral agreement to delay collection of a promissory note secured by a
deed of trust that was not part of an agreement for the sale of real property. They argue
that they raised a genuine issue of material fact about Dashiell's waiver of his right to
enforce the terms of the notes before June 1, 2016.
We review de novo a trial court's order granting summary judgment.4 Summary
judgment is appropriate if, viewing the facts and reasonable inferences in the light most
favorable to the nonmoving party, no genuine issue of material fact exists and the moving
party is entitled to judgment as a matter of law.5 A genuine issue of material fact exists if
reasonable minds could differ about the facts controlling the outcome of the lawsuit.6
4 Michak v. Transnation Title Ins. Co.. 148 Wash. 2d 788, 794-95, 64 P.3d 22 (2003).
5 CR 56(c).
6 Ranger Ins. Co. v. Pierce County, 164 Wash. 2d 545, 552, 192 P.3d 886 (2008).
No. 74535-2-1 / 4
The California statute of frauds requires that any contract subject to its provisions
be memorialized in a writing signed by the party to be charged or by the party's agent.7
An agreement for the sale of real property or an interest in real property comes within this
statute of frauds.8 This includes a promissory note and a deed of trust securing
performance of the note.9
The statute of frauds also applies to any agreement to modify a contract that is
subject to it.10 A modification of a contract involves a change in the obligations of a party
by a later agreement ofthe parties.11 In Secrest v. Security National Mortgage Loan Trust
2002-2,12 the California court of appeals held that a forbearance agreement, in which a
lender agreed not to foreclose on the borrower's home, was subject to this statute of
frauds because it modified the original promissory note and the deed of trust signed by
the borrowers.
The Ebenals argue that this statute of frauds does not apply here because it
"expressly requires a subscribed writing for an agreement 'for the sale of real property.'"
They contend that their asserted oral agreement is not subject to the statute of frauds
because it was not made as part of a sale or purchase of real estate.13 Butthat distinction
7Cal. Civ. Code. § 1624; Rossberg v. Bank of Am.. N.A., 219 Cal. App. 4th 1481,
1503, 162 Cal. Rptr. 3d 525 (2013) (citing Secrest v. Sec. Nat'l Motto. Loan Trust 2002-
2, 167 Cal. App. 4th 544, 552, 84 Cal. Rptr. 3d 275 (2008)).
8 Cal. Civ. Code § 1624(a)(3).
9 Rossberg, 219 Cal. App. 4th at 1503.
10 Cal. Civ. Code § 1698.
11 Secrest. 167 Cal. App. 4th at 553.
12 167 Cal. App. 4th 544, 553, 84 Cal. Rptr. 3d 275 (2008).
13 The Ebenals rely on a treatise, 4 Miller &Starr, California Real Estate § 10:123,
at 379 (3d ed. 2003), cited in Secrest. 167 Cal. App. 4th at 554-55, and a South Dakota
case, Johnson v. Sellers. 2011 S.D. 24, 798 N.W.2d 690, 695, to support their argument.
Neither is persuasive in light of Rossberg and Secrest. Furthermore, the Secrest court
No. 74535-2-1 / 5
makes no difference. In Rossberg v. Bank of America. N.A..14 the statute of frauds applied
to a loan modification agreement that did not involve the purchase or sale of real property,
only a note secured by a deed of trust. The borrowers claimed that they had been told
numerous times that they had been granted a loan modification that would reduce or fix
their interest rate, establish an impound account, and require a balloon payment at the
end of the loan.15 No documents were ever signed, however, to complete or formalize
the modifications.16 The court held that the statute of frauds applied, even though the
purported agreement was only for the purpose of "arrang[ing] a refinancing loan," not to
convey an interest in real property.17
The Ebenals next argue that the statute of frauds does not apply to their agreement
with Dashiell because it did not modify terms of the deed of trust.18 We disagree. In
Rossberg. the court held that a modification to the terms of a secured promissory note
required a signed writing even if it does not alter any terms of the deed of trust.
expressly disagreed with the treatise's statement that "[a]n oral agreement not to
foreclose the lien of a mortgage or deed of trust, if given for consideration, is enforceable
without any written confirmation by the beneficiary or trustee." 167 Cal. App. 4th at 554.
14 219 Cal. App. 4th 1481, 1503, 162 Cal. Rptr. 3d 525 (2013).
15 Rossberg. 219 Cal. App. at 1487.
16 Rossberg, 219 Cal. App. at 1487-88.
17 Rossberg, 219 Cal. App. at 1503.
18 The Ebenals cite Lueras v. BAC Home Loans Servicing. LP. 221 Cal. App. 4th
49, 71, 163 Cal. Rptr. 3d 804 (2013), to support their argument. Lueras affirmed the
general rule that "a forbearance agreement that modifies a note and deed of trust is
subject to the statute offrauds," even though the parties did not raise the statute offrauds
as a defense. 221 Cal. App. 4th at 71. The Lueras court found that the written
forbearance agreement was valid even though Bank of America had not signed itbecause
it expressly stated, "No Modification. Iunderstand that the Agreement is nota forgiveness
of payments on my Loan or a modification ofthe Loan Documents." 221 Cal. App. 4th at
71. Here, we have no such provision that evidences the parties' intent that the
forbearance agreement would not be considered a modification ofthe notes. Luerasdoes
not apply.
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No. 74535-2-1 / 6
Accordingly, the trial court did not err by concluding that the Ebenals' oral agreement was
subject to the California statute of frauds.
Klyce and Dashiell request an award of reasonable attorney fees and costs under
the terms of the notes and RAP 18.1. The notes state, "In the event of any action or legal
proceeding concerning this Note or the enforcement of any rights hereunder, Lender shall
be entitled to . . . all legal and court costs and expenses, including reasonable attorneys'
fees, incurred by Lender in connection with such action." We grant Klyce and Dashiell's
request for attorney fees and costs on appeal upon their compliance with RAP 18.1.
CONCLUSION
Because the Ebenals have failed to raise an issue of material fact about the
affirmative defense of waiver, we affirm the trial court and award Klyce and Dashiell their
attorney fees and costs on appeal upon their compliance with RAP 18.1.
WE CONCUR:
f