Fidelity National Title Insurance Co., Pltf. V. Arcon Tenant Improvement, Brmk, Resps. ( 2023 )


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  •    IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
    FIDELITY NATIONAL TITLE
    INSURANCE COMPANY, a Florida                No. 83925-0-I
    corporation,                                (Consolidated with
    No. 84385-1-I)
    Plaintiff,
    DIVISION ONE
    v.
    UNPUBLISHED OPINION
    ARCON TENANT IMPROVEMENT
    CONTRACTORS, LLC, a Washington
    limited liability company,
    Petitioner,
    BRMK LENDING, LLC, a Delaware
    limited liability company as successor in
    interest by merger of PBRLF I, LLC, a
    Washington limited liability company;
    and SARA AL MUGHAIRY, a married
    woman as her separate property;
    LAWRENCE SHIN, a single person;
    WESLEY JOURDAN CANETE, a single
    person; RENE N. FULLER and
    RONGPING HUANG, spouse and
    spouse; COOLIE CALIHAN, a single
    person; XIAOLONG ZHU, a single
    person; YANG LU, a single person;
    TYLER SCOTT RICE, a single person;
    BEN GROVES, a single person;
    VERONICA LATOYA BYNUM, a single
    person; TRUC TON and MAI NGO,
    spouse and spouse; DANIEL CLARK
    EPPERSON, a single person;
    TRUCMAI TON, a single person;
    CANDY XIAO, a single person;
    WILLIAM K. LUU, a single person;
    DUSTIN JOHN STEINBECK and
    MAXINE MICHELLE STEINBECK,
    83925-0-I/2
    spouse and spouse; MUSA KEWA, a
    single person; VENKATA VYSYARAJU,
    a single person; DANIEL LU ZHU, a
    single person; YOON PYO HONG, a
    single person; SUMIT MANCHANDA
    and MEGHA BAWA, spouse and
    spouse; CAROL LO, a single person;
    WENBO LI, a married person as
    separate property; SOLOMON R.
    WALDBAUM, a single person; NANCY
    SIJIA CHENG, a single person;
    ORLANDO O'NEILL, a single person;
    HONGKE QIN, a single person;
    TOMMY M. CHUE and ANNIE PENG,
    spouse and spouse; BRETT HARRIS, a
    single person; KOUSHIK S.
    KRISHNAN, a single person; JOO
    SUNG NAM and HEE YOUNG CHUNG,
    spouse and spouse; SERGEI
    VOROBEV and SVETLANA
    GAIVORONSKI, spouse and spouse;
    TUSHAR AGRAWAL and RENUKA
    AGRAWAL, spouse and spouse;
    NICOLAS DE CRISTOFARO, a single
    person; DARRYL AINBINDER and LILY
    LEE-CHUAN MAI, spouse and spouse;
    DALIN AINBINDER, a single person;
    DANIEL J. AGUIRRE, a single person;
    DANIEL STORY, a single person;
    PHONG V. VUONG, a single person;
    KIMBERLY JOANNE KUNG, a single
    person; GENNEVI F. LU, a single
    person; DMITRY POLEVOY, a single
    person; NIKOLAOS PAVLAKIS and
    NIKOLETA KASAPAKI, spouse and
    spouse; ALLISON C. O'BRIEN, a single
    person; and UNNAMED JOHN AND
    JANE DOE, Edison Capitol Hill
    Condominium Owners,
    Respondents,
    12TH AND JOHN INVESTORS, LLC, a
    Washington limited liability company,
    Defendant,
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    83925-0-I/3
    BRMK LENDING, LLC, a Delaware
    limited liability company as successor in
    interest by merger of PBRLF I, LLC, a
    Washington limited liability company,
    Third-Party Plaintiff,
    MTC FINANCIAL, INC., d/b/a
    TRUSTEE CORPS, a Washington
    corporation,
    Third-Party Defendant.
    COBURN, J. — This discretionary review involves multiple summary judgment
    orders centered around the interpretation of complex agreements entered into by the
    insolvent owner/developer of the Edison Condominium project, its lender, and the
    project’s general contractor. The agreements included a grant of a deed of trust on the
    developed property to the contractor, Arcon Tenant Improvement Contractors, LLC
    (Arcon), to secure payment of money owed Arcon in accordance with the agreements.
    Payment disputes led to Arcon refusing to grant partial releases of its deed of trust and
    issuing notices of default and foreclosure on sold condominium units, which led to
    multiple claims by multiple parties. Fidelity National Title Company sued Arcon and the
    lender, BRMK Lending, LLC (BRMK), for breach of contract. BRMK then filed a cross-
    claim against Arcon for breach of contract, declaratory injunctive relief, and specific
    performance. A group of condominium owners (Owners) sued Arcon seeking
    declaratory and injunctive relief and to quiet title. The superior court entered a
    preliminary injunction prohibiting Arcon from foreclosing on any condominium units.
    Following partial summary judgment motions, the court concluded that the Owners were
    third-party beneficiaries, found that Arcon breached its covenant to grant partial
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    83925-0-I/4
    releases of its deed of trust, permanently enjoined Arcon from its foreclosure sales, and
    granted the Owners’ motion to quiet title. The court also denied Arcon’s motion
    requesting a determination that BRMK breached a modification of the original
    agreement.
    We hold that the plain language of the agreements does not support permitting
    BRMK to increase the loan amount used in the agreed payment formula by adding later
    advanced funds. We also reverse the superior court’s ruling that Arcon had an
    “unequivocal obligation” to grant partial releases of its deed of trust. Arcon maintains
    that it was no longer obligated to release deeds of trust because BRMK first materially
    breached the payment agreement. Because genuine issues of fact remain as to
    whether Arcon breached its covenant to grant partial releases of its deed of trust, we
    reverse the summary judgment order finding otherwise. Though we agree that the
    Owners are third-party beneficiaries based on the record before us, we also reverse the
    trial court’s order quieting title and permanently enjoining Arcon from exercising its right
    to foreclose units under its deed of trust. Lastly, we affirm the lower court’s denial of
    Arcon’s partial summary judgment motion requesting a determination that BRMK
    breached a modification of its original agreement with Arcon, but we do so for reasons
    different from the superior court’s reasoning as explained below.
    We affirm in part, reverse in part, and remand.
    FACTS
    Capitol Hill Subway, LLC (Capitol) is the owner and developer of the 51-unit
    Edison Condominiums. To develop the project, Capitol obtained a $17,615,000
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    construction loan in July 2018 from BRMK’s predecessor in interest. 1 The Construction
    Loan Agreement provides that the lender may, upon the occurrence of an uncured
    default by Capitol, “take possession of the Project and perform any and all work and
    labor necessary to complete the Project.” In such event “[a]ny funds disbursed by
    Lender in excess of the maximum principal amount of the Loan will be considered an
    additional loan to Borrower.” The Construction Loan Agreement granted the lender
    power of attorney upon the occurrence of a default which is not timely cured in
    accordance with the loan documents. 2
    Capitol hired Arcon as the general contractor. At some point near the completion
    of the project but before any condominium units were sold, Capitol became insolvent.
    Arcon and the unpaid subcontractors on the project contemplated recording mechanic’s
    liens against the property. However, after negotiations in February 2019, Arcon, BRMK,
    and Capitol executed multiple inter-reliant contracts to avoid the recording of any
    mechanic’s liens so that the condominium units could be sold and the debts to BRMK,
    Arcon, and Arcon’s subcontractors could be paid using the proceeds. At the time, the
    parties anticipated that the sale proceeds of the condominium units would likely be
    sufficient to fully pay both Arcon and BRMK.
    The negotiations produced multiple contracts: 1) a Promissory Note from Capitol
    to Arcon for $1,231,665 for its construction work; 2) the Arcon Deed of Trust (ADOT)
    from Capitol to secure payment on the construction work; 3) a Lien Waiver Agreement
    1
    BRMK’s predecessor in interest, PBRELF I, LLC, and BRMK are collectively referred to
    as BRMK.
    2
    The lender, BMRK, could “pay, settle or compromise all existing bills and claims which
    may be liens against the Project or as may be necessary or desirable for the completion of the
    Project or for clearance of title; and . . . do any and all things which Borrower might do on its
    own behalf in order to complete the Project free and clear of all liens and encumbrances.”
    5
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    (LWA) entered into by BRMK, Capitol, and Arcon on March 5, 2019, that outlined the
    formula by which the proceeds from the sale of the condominium units would be
    distributed; and 4) an indemnity agreement between Arcon (indemnitor) and Fidelity
    National Title. The LWA and ADOT were drafted by BRMK’s law firm.
    The Promissory Note established that
    This Note shall be paid as funds become available from proceeds from the
    sale of condominium units to be developed on the real property
    encumbered by the Deed of Trust defined below pursuant to the terms of
    an Agreement Regarding Lien Waivers (the “Agreement”) among Maker,
    Holder and PBRELF I, LLC (“First Lender”).
    The Note was secured by the ADOT, which was junior to the first Deed of Trust
    belonging to BRMK that secured the $17,615,000 construction loan.
    The ADOT secured obligations that included “Performance by Grantor of each
    agreement of Grantor herein contained or contained in the Agreement or Note.” In the
    ADOT, the grantor represented, warranted and agreed that it “will pay the amount owed
    for the Construction Work pursuant to the Note and [LWA], and will perform and comply
    with each and every term, covenant and condition hereof, and of the [LWA].” The
    ADOT listed failing to “pay amounts owed under the Note or to pay or perform in
    accordance with the [LWA]” as an act or occurrence that shall constitute a default.
    The Lien Waiver Agreement
    The LWA lists multiple recitals:
    A. Borrower is indebted to Lender in the original principal amount of
    Seventeen Million Six Hundred Fifteen Thousand and 00/100 Dollars
    ($17,615,000.00) (the “Loan”).
    B. The Loan is evidenced by a Promissory Note in the amount of the
    Loan, executed by Borrower in favor of Lender (the “Note”).
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    83925-0-I/7
    C. The repayment of the Loan is secured by a Deed of Trust, Security
    Agreement and Fixture Filing with Assignment of Leases and Rents (the
    “Lender Deed of Trust”), from Borrower, as grantor therein, in favor of
    Lender, as beneficiary therein. . . . .
    D. Arcon asserts that it is owed $1,492,930.59, as of February 1, 2019,
    from Borrower for construction services (the “Construction Work”) related
    to the development of the Property into a condominium known as the
    Edison Condominium (the “Condominium”). The amount claimed to be
    owed for the Construction Work is set forth on Exhibit B attached hereto
    with the amount owed each subcontractor of Arcon clearly identified on
    Exhibit B. Each unit of the Condominium is hereinafter called a “Unit” and
    collectively called the “Units”.
    E. Arcon represents that neither it nor any subcontractor that it is aware of
    is owed any amount other than set forth on Exhibit B.
    F. As part of the above amount, Arcon advanced Borrower Two Hundred
    Sixty One Thousand Two Hundred Sixty Five and 05/100 Dollars
    ($261,265.05).
    G. Arcon has agreed not to file/record a mechanics’ lien for the
    Construction Work, subject to the terms and conditions of this Agreement.
    The parties agreed in the LWA that in consideration of a cash payment of $261,265.05
    made in March 2019, “Arcon agrees not to file or record a mechanics’ or other lien on
    the Property for the Construction Work or any other amounts.” Further, the “Cash
    Payment shall be added to the unpaid balance owed by Borrower to Lender under the
    Loan.” The LWA acknowledges the ADOT is a security of the balanced owed:
    Deed of Trust for Balance Owed. After payment of the Cash Payment, the
    remaining unpaid balance of the Construction Work shall be secured by a
    deed of trust (the “Arcon Deed of Trust”), in the form attached hereto as
    Exhibit F, to be executed by Borrower in favor of Arcon and shall accrue
    interest on a monthly basis as provided in the attached Exhibit C
    note (the “Arcon Note”). . . . Arcon shall issue a partial release from the
    Arcon Deed of Trust upon the sale of each Unit.
    7
    83925-0-I/8
    Section 5 of the LWA outlines the methodology of the payment of the balanced owed.
    The Lender (BRMK) shall receive 100 percent of the net sales proceeds from the sale of
    the first 10 units. Then,
    [f]rom the sale of each Unit, Lender shall receive cash in an amount
    determined in accordance with the following formula: (X) the amount of
    principal and interest, including fees (such fees not to exceed one-half of
    one percent (0.5%) per month and such interest not to exceed 1% per
    month), then outstanding under the Loan divided by (Y) the number of
    unsold Units, including the Unit then being sold, plus (Z) the amount of
    any liens against the Property paid by Lender to subcontractors shown on
    Exhibit B (or valid claims through Arcon not shown on Exhibit B) and that
    were recorded against the Property after February 26, 2019, which
    amounts, to the extent not already paid under the second sentence of
    this section 5, shall also be deducted from the amount of the Construction
    Work and the Arcon Note. For clarity purposes it is (X÷Y) +Z.
    Any proceeds in excess of this formula would be split 50/50 between BRMK and Arcon.
    Thus, the bigger the X, amount of principal and interest, the more proceeds the lender
    received upfront before splitting the excess between the lender and Arcon. Arcon’s 50
    percent interest in the excess sale proceeds were to be “held by Lender in a separate
    account . . . and paid out on a monthly basis.” Arcon and its subcontractors were to be
    paid from this account in accordance with another formula in the LWA. About a week
    before the LWA was executed, the parties believed that it would take the sale of about
    20 units to pay Arcon in full in about two months. Under the indemnity agreement with
    Fidelity National Title, Arcon was to
    hold harmless, protect and indemnify Title Company from and against any
    and all liabilities, losses, damages, expenses and charges including
    attorneys’ fees and expenses of litigation, which Title Company may
    sustain under any policy of insurance respecting the land resulting directly
    or indirectly from any mechanic’s lien, or claim thereof, or which Title
    Company may sustain in the enforcement of this Agreement.
    8
    83925-0-I/9
    Performance Under the Lien Waiver Agreement
    After the first six units sold in March 2019, the Fidelity escrow officer in charge of
    closing services asked Arcon to grant partial releases for those units. Arcon complied
    and Fidelity recorded those reconveyances. The next request for releases came later in
    spring 2019 for five units. Arcon did not grant the releases.
    Arcon took issue with BRMK’s characterization of which unit was the tenth unit
    sold, of which Arcon would receive no proceeds, and which was the eleventh unit sold,
    which would trigger the application of the proceeds formula from the LWA. The units
    were sold about two hours apart. Those two units were not of equal monetary value.
    Arcon maintains that this “switch” in the accounting resulted in an “under-calculation of
    the amount due Arcon and its sub[contractor]s under the terms of the Lien Waiver
    Agreement by over $80,000.” Arcon notified BRMK by at least April 22 of their belief
    that Arcon was owed additional funds because of this accounting decision.
    On April 30, BRMK allegedly added $118,943.61 to the loan balance due them
    from Capitol and added this figure to the “outstanding principal owed” in the payment
    formula under the LWA. The record indicates that, according to BRMK’s own
    accounting, BRMK has advanced no less than an additional $2.476 million dollars “to
    complete the project and maintain the property, making sales of units possible” and
    added that amount to the loan figure used in the payment formula. The parties
    continued to dispute the amount owed to Arcon and whether the LWA allows BRMK to
    increase the “loan” amount used in the formula.
    Despite these ongoing disagreements, Capitol continued to sell condominium
    units with Fidelity providing title insurance and handling the closings. The title insurance
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    83925-0-I/10
    policies obligated Fidelity to clear certain liens on the Edison Condominium units not
    excepted in the policies. Believing Arcon had to grant partial releases of its deed of
    trust upon a sale of a condominium unit under the LWA, Fidelity “removed, and did not
    except, the Arcon Deed of Trust lien from the final owners’ title policies issued to 43
    owners of the Edison Condominium units.”
    Arcon issued a Notice of Default to BRMK on September 11, 2020, detailing
    various alleged breaches of the LWA and confirming “that Arcon [would] not release its
    Deed of Trust from any units until” the defaults were cured.
    In October, with sales of the remaining condominium units nearing completion,
    BRMK and Arcon appeared to come to an agreement via emails and a draft escrow
    agreement that the proceeds from the sale of Unit 201 would be held in escrow by
    Fidelity, the title company, and only paid out with the mutual consent of Arcon and
    BRMK upon receipt by Fidelity of a court order or arbitration award. Internal emails
    between BRMK and their counsel discussed and approved of a course of action to
    reach out to Arcon’s manager to “negotiate to have #201 close with escrow holding
    100% of net proceeds until we resolve the contract dispute.” The draft escrow
    agreement includes a “Reservation of Rights” section that expressly contemplates
    Arcon and BRMK continuing to seek enforcement of their rights and remedies under the
    LWA “[e]xcept as expressly provided herein.”
    Unit 201 sold, but the proceeds were not held in escrow and instead wired
    directly to BRMK by Fidelity, to BRMK’s own apparent surprise. BRMK does not
    dispute that it had agreed to set aside the proceeds of Unit 201 and concedes it has no
    explanation as to what happened. In follow-up negotiations in February 2021, BRMK
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    offered to set aside proceeds from both Unit 201 and Unit 206 in exchange for Arcon
    agreeing to release its deed of trusts as to all units. These negotiations were
    unsuccessful.
    Procedural History
    Arcon issued a Notice of Default on its Deed of Trust in April 2021, and recorded
    a Notice of Trustee’s Sale in June.
    In July, Fidelity filed a complaint for breach of contract against Arcon and BRMK
    as co-defendants. In addition to a monetary judgment, it sought an order enjoining
    Arcon from foreclosing the ADOT against any Edison Condominium unit and to set
    aside the notice of foreclosure. Fidelity’s principal allegation was that Arcon’s decision
    to stop releasing partial deeds of trust resulted in Fidelity issuing titles without clearing
    the ADOT or excepting it in the title insurance policies. Fidelity also claimed that Arcon
    is obligated to indemnify Fidelity.
    In its answer, BRMK filed a cross-claim against Arcon for breach of the LWA,
    declaratory injunctive relief, and specific performance. The next day, 39 individual
    Edison Condominium unit owners (Owners) sued Arcon seeking declaratory and
    injunctive relief to release the ADOT, to enjoin the foreclosure sale, and to quiet title.
    The parties agreed to consolidate the two matters. The trial court entered a preliminary
    injunction in September prohibiting Arcon from foreclosing on the condominium units.
    After further proceedings, disputed legal issues were presented to the trial court
    in multiple motions for partial summary judgment. In January 2022, Arcon filed a motion
    for partial summary judgment claiming BRMK breached the “Modification to the Lien
    Waiver Agreement” by not placing sale proceeds from Unit 201 into an escrow account
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    83925-0-I/12
    “in exchange for Arcon’s agreement to release its Deed of Trust on Unit 201 when the
    funds were deposited.” The same day, BRMK filed its motion for partial summary
    judgment requesting the court find that Arcon breached its covenant to release its deed
    of trust on past sold units and that LWA’s reference to “then outstanding under the
    Loan” in paragraph 5(a) means the amount outstanding on the loan from BRMK to
    Capitol as provided for in the loan documents. The court denied Arcon’s motion and
    granted BRMK’s motion.
    Arcon filed a second motion for partial summary judgment requesting the court
    dismiss the Owners’ complaint with prejudice because they are not third-party
    beneficiaries. The court denied that motion.
    The Owners also filed a motion for summary judgment on their complaint. The
    court granted their motion.
    In April 2022, Arcon sought discretionary review with this court of all four
    summary judgment orders. It also successfully petitioned the King County Superior
    Court for appointment of a general receiver to manage the property pursuant to RCW
    7.60.025. A commissioner of this court granted discretionary review of all four orders
    without limitation. 3
    3
    The commissioner also later granted Arcon’s requested discretionary review of the trial
    court’s July 28, 2022 order to disburse funds held by Capitol’s Receiver to BRMK. Finding that
    the trial court’s July 28 order was inextricably intertwined with the summary judgment orders at
    issue, the commissioner consolidated both matters for this court’s review. Arcon fails to assign
    error to the trial court’s decision to disburse funds or otherwise address that issue in its opening
    brief. We consider this issue waived. State v. Sims, 
    171 Wn.2d 436
    , 441, 
    256 P.3d 285
     (2011)
    (A party “is deemed to have waived any issues that are not raised as assignments of error and
    argued by brief.”); RAP 10.3(a)(4), (g). While Arcon was seeking discretionary review of this
    order, the funds were disbursed and Arcon then motioned this court to “return funds.” A
    commissioner of this court denied that motion, explaining through a notation ruling that “it
    appears the more appropriate course is for Arcon to apply to the trial court for factual findings
    and a decision on a supersedeas bond under RAP 8.1, which provides an option for any party to
    12
    83925-0-I/13
    DISCUSSION
    We review a grant or denial of summary judgment de novo, performing the same
    inquiry as the trial court and restricting our consideration to the issues and record called
    to the attention of the trial court. Sheikh v. Choe, 
    156 Wn.2d 441
    , 447, 
    128 P.3d 574
    (2006); RAP 9.12. “Absent disputed facts, the legal effect of a contract is a question of
    law that we review de novo.” Keystone Masonry, Inc. v. Garco Const., Inc., 
    135 Wn. App. 927
    , 932, 
    147 P.3d 610
     (2006). “Summary judgment is appropriate where there is
    no genuine issue of material fact and the moving party is entitled to judgment as a
    matter of law.” Lokan & Assoc., Inc. v. Am. Beef Processing, LLC, 
    177 Wn. App. 490
    ,
    495, 
    311 P.3d 1285
     (2013). We view the facts and reasonable inferences in the light
    most favorable to the nonmoving party. Ramey v. Knorr, 
    130 Wn. App. 672
    , 685, 
    124 P.3d 314
     (2005).
    Washington follows the objective manifestation theory of contracts, which seeks
    to determine the mutual intent of parties to a contract in terms of the “reasonable
    meaning of the words used” in the writing. Estate of Carter v. Carden, 11 Wn. App. 2d
    573, 582, 
    455 P.3d 197
     (2019). We avoid interpreting contracts in a way that “would
    lead to absurd results.” Hartford Fire Ins. Co. v. Columbia State Bank, 
    183 Wn. App. 599
    , 608, 
    334 P.3d 87
     (2014). Contracts may be comprised of several inter-reliant
    documents, “including antecedent correspondence and prior written memorandums.”
    Smith v. Skone & Connors Produce, Inc., 
    107 Wn. App. 199
    , 206, 
    26 P.3d 981
     (2001).
    Contracts are generally to be construed so as to give “lawful effect” to all their
    provisions and are not to be interpreted in ways that would render parts of their
    seek relief from any such decision by motion before this Court, see RAP 8.1(h).” Arcon did not
    file a motion to modify that ruling.
    13
    83925-0-I/14
    language meaningless or ineffective. Pelly v. Panasyuk, 2 Wn. App. 2d 848, 865, 
    413 P.3d 619
     (2018). Any ambiguity in a contract is to be construed against the drafter of
    such contract. Sprague v. Safeco Ins. Co. of Am., 
    174 Wn.2d 524
    , 528, 
    276 P.3d 1270
    (2012).
    Loan Amount in Payment Formula
    The parties dispute whether the amount of the principal “then outstanding under
    the Loan” under the LWA is the original principal amount of $17,615,000 or whether it
    can be increased by BRMK’s additional advanced funds as allowed under the 2018
    Construction Loan Agreement. The trial court concluded that “[t]he ‘Loan’ referenced by
    the LWA is the Construction Loan Agreement executed on July 31, 2018 . . . [which has]
    standard provisions in 9(d) which allow Lender (BRMK, formerly PBRELF I) to take
    possession and perform work and labor necessary to complete the project in the event
    of a default.”
    Summary judgement in contract construction is proper where “the parties’ written
    contract, viewed in light of the parties’ other objective manifestations, has only one
    reasonable meaning.” Spradlin Rock Prods., Inc. v. Pub. Util. Dist. No. 1 of Grays
    Harbor County, 
    164 Wn. App. 641
    , 655, 
    266 P.3d 229
     (2011) (quoting Hall v. Custom
    Craft Fixtures, Inc., 
    87 Wn. App. 1
    , 9, 
    937 P.2d 1143
     (1997)). The principle of “other
    objective manifestations” in contract construction explicitly disregards “unilateral or
    subjective purposes and intentions about the meanings of what is written.” Hall, 87 Wn.
    App. at 9 (quoting Lynott v. Nat’l Union Fire Ins. Co., 
    123 Wn.2d 678
    , 684, 
    871 P.2d 146
    (1994)). “Interpreting a contract provision ‘is a question of law only when (1) the
    interpretation does not depend on the use of extrinsic evidence, or (2) only one
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    83925-0-I/15
    reasonable inference can be drawn from the extrinsic evidence.’” Lokan & Assoc., 177
    Wn. App. at 499 (quoting Tanner Elec. Coop. v. Puget Sound Power & Light Co., 
    128 Wn.2d 656
    , 674, 
    911 P.2d 1301
     (1996)).
    BRMK, quoting RESTATEMENT (SECOND) OF CONTRACTS § 202(2) (1981), argues
    that the LWA must be viewed through the lens of the Construction Loan Agreement as a
    “writing[] that [is] part of the same transaction.” BRMK contends that the “inter-reliant
    documents” evidence the definitions of the LWA’s legally-significant terms. The
    Construction Loan Agreement was executed in July 2018 between Capitol and BRMK
    so that Capitol could begin the construction project. The LWA was executed in March
    2019 when Capitol had become insolvent. Neither the LWA nor any of its inter-reliant
    exhibits reference the Construction Loan Agreement. Nor do any documents
    contemporary to the LWA reflect contemplation of the need for BRMK to advance
    additional funds in order to complete the project.
    BRMK also relies on extrinsic evidence of pre-LWA negotiations related to
    “project costs” to support their reading of the LWA. 4 This argument is unavailing as a
    basic principle of construction where there is no “ambiguous term” in the written contract
    itself. Weyerhaeuser Co. v. Burlington N., Inc., 
    15 Wn. App. 314
    , 319, 
    549 P.2d 54
    4
    BRMK only cites to half the email conversation that uses the term “project costs” but
    does not indicate what that term refers to. In an email to Arcon, BRMK explained that it initially
    added expenses associated with the sale of a unit to the loan balance, but later added
    expenses associated with unit sales to the closing statements for those sales “where they
    should have been to begin with.” BRMK describes the expenses that are customary seller’s
    fees and expenses payable to unrelated third parties as costs of staging, delinquent real estate
    taxes for the units, appliances, and final punch items. The LWA defines “net sales proceeds” to
    mean the total consideration paid to Capitol for a condominium unit less “liens recorded against
    the Property, real estate excise or transfer tax, escrow fees, recording fees, commissions to real
    estate brokers, if any, and other customary seller’s fees and expenses payable to unrelated
    third parties, all as approved by Lender.”
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    83925-0-I/16
    (1976). To the contrary, the plain language of the inter-reliant documents support
    reading the original “Loan” as a fixed amount. Recital A of the LWA expressly identifies
    the “‘Loan’” as the $17,615,000 “original principal amount” the borrower (Capitol) is
    indebted to the lender (BRMK). Recital B states “[t]he Loan is evidenced by a
    Promissory Note in the amount of the Loan, executed by [Capitol] in favor of [BRMK]
    (the ‘Note’).” The Promissory Note issued to BRMK’s predecessor and described in the
    LWA states that the loan’s principle is “the sum of Seventeen Million Six Hundred
    Fifteen Thousand and 00/100 Dollars ($17,615,000) (the ‘Principal’).” The parties
    spelled out in the LWA when other amounts could be added to the original principal
    amount. They agreed that the $261,265.05 cash payment “shall be added to the unpaid
    balance owed by Borrower to Lender under the Loan.” The LWA also allows fees and
    interest, with limitations, to be added.
    It is undisputed that the purpose of the LWA was to find a way for all parties to
    get paid by avoiding a mechanic’s lien so that the condominium units could still be sold.
    It is also undisputed that after the sale of the first 10 units, the payment formula first
    calculated an amount of cash to be disbursed to the lender, BRMK, before splitting the
    excess proceeds between BRMK and Arcon. As more units sold, more proceeds would
    go to the lender to pay down the outstanding loan balance.
    A loan balance that increases beyond what is agreed to in the LWA would
    translate to more money to the lender and less excess proceeds to be split between
    BRMK and Arcon. BRMK’s contention that Arcon agreed to a non-fixed loan amount in
    the formula where BRMK could independently choose when to advance funds without
    16
    83925-0-I/17
    limitation and increase the amount of the “loan” balance used in the formula to Arcon’s
    detriment is not a reasonable interpretation.
    At the time of calculating the proceeds from a sale of a unit, the formula
    considers the amount of principal and interest, including fees, “then outstanding under
    the Loan.” We conclude that the plain language of the LWA, including its inter-reliant
    documents, has only one reasonable meaning—that the original principal “Loan”
    amount to be used in the formula is $17,615,000 and that the term “then outstanding
    under the Loan” reflects the current outstanding loan balance that includes the
    contemplated added cash payment, interest and fees as well as the payments towards
    paying down the loan from prior sale proceeds.
    Arcon’s Partial Release of Deeds of Trust
    The trial court found that
    The terms of the LWA (see paragraph 4), the Arcon Deed of Trust (see
    paragraph 16), and the Indemnity Agreement were all premised upon
    clear, plain language which placed an unequivocal obligation on Arcon to
    release a Deed of Trust for each unit, as it was sold. The failure of Arcon
    to abide by these terms is a breach of its covenant.
    BRMK and the Owners maintain that Arcon’s obligation to partially release its
    deed of trust upon sale of each condominium unit was not conditioned on receipt of
    monthly payments from the sale proceeds. It appears both BRMK and the Owners
    mischaracterize Arcon’s argument suggesting that the central issue is the “receipt” of
    monthly payments. While the LWA expressly states that Arcon shall receive cash
    payments monthly, the determination of the amount owed is calculated based on the
    “sale of each Unit” that incorporates “the number of unsold Units” remaining. The crux
    17
    83925-0-I/18
    of Arcon’s claim of not receiving proper payment is based on the interpretation and
    application of the payment formula.
    BRMK and the Owners rely on the last sentence of section 4 of the LWA that
    states, “Arcon shall issue a partial release from the Arcon Deed of Trust upon the sale
    of each unit.” Certainly, when reading only the last sentence in section 4 of the ADOT
    in isolation, one finds support for the argument that Arcon was unequivocally required to
    grant partial releases of the ADOT whenever a unit sold. However, when interpreting a
    contract all of the contract is to be read as a whole. Weyerhaeuser Co. v. Com. Union
    Ins. Co., 
    142 Wn.2d 654
    , 669, 
    15 P.3d 115
     (2000). Also, where possible, we must read
    the terms of the contract in a way that avoids the “absurd results” of bargained-for
    securities being rendered illusory. Hartford Fire, 183 Wn. App. at 608; see also Taylor
    v. Shigaki, 
    84 Wn. App. 723
    , 730, 
    930 P.2d 340
     (1997).
    Section 4 of the LWA states that after deduction of the “Cash Payment”
    ($261,265.05), “the remaining unpaid balance of the Construction Work shall be
    secured by a deed of trust (the ‘Arcon Deed of Trust’), in the form attached hereto as
    Exhibit F, to be executed by Borrower in favor of Arcon.” (Emphasis added.) The
    ADOT stated that the amount owed by Capitol to Arcon for Construction Work
    ($1,231,665) is “secured by this Deed of Trust.” It acknowledged grantor’s obligations
    to deal with matters related to the Construction Work as evidenced in the LWA, “which
    is also secured by this Deed of Trust.” The secured obligations included performance
    by grantor of each agreement contained in the ADOT, LWA and Promissory Note. The
    ADOT states that the “Grantor will pay the amount owed for the Construction Work
    pursuant to the Note and [LWA], and will perform and comply with each and every term,
    18
    83925-0-I/19
    covenant and condition hereof, and of the [LWA].” Section 6 of the ADOT addresses
    default. Listed as an act or occurrence that constitutes default is “Failure of Grantor to
    pay amounts owed under the Note or to pay or perform in accordance with the [LWA].”
    Section 16 of the ADOT addresses partial releases: “Beneficiary shall, upon the request
    of Grantor grant partial releases for individual units comprising the Real Property (each,
    a “Unit”) when a Unit is sold by Grantor in accordance with the provisions of the
    Agreement.” (Emphasis added.)
    We conclude from reading the inter-reliant documents as a whole that the last
    sentence in section 4 supports an interpretation that Arcon shall issue a partial release
    from the Arcon Deed of Trust upon the sale of each unit that is sold in accordance with
    the provisions of the LWA. To suggest that Arcon was obligated to unequivocally give
    up the very security it bargained for to ensure that it would get paid as agreed to under
    the LWA creates an absurd result and would render its security illusory.
    Arcon maintains that it was not required to grant partial releases because BRMK
    did not comply with provisions in the LWA when units were sold. Because the ADOT
    requires Arcon to grant a partial release when a Unit is sold in accordance with the
    provisions of the LWA, and the LWA requires application of the disbursement formula
    for “the sale of each Unit,” whether Arcon committed a breach is a fact-specific inquiry.
    Because we have also concluded that the provisions of the LWA do not allow BMRK to
    increase the principal loan balance in the formula by adding advanced funds under
    Capitol’s construction loan, Arcon’s contention that it was not required to perform
    through granting partial releases because of BMRK’s material breach raises a genuine
    19
    83925-0-I/20
    issue of material fact. 5 Determinations of contractual breach tend to require factual
    determinations unless we are truly “[a]bsent disputed facts.” Keystone Masonry, 135
    Wn. App. at 932. Where there are genuine issues of material fact, summary judgment
    is not appropriate. We accordingly reverse the summary judgment order concluding
    Arcon breached its covenant to grant partial releases of the ADOT.
    Escrowing Unit 201 Sales Proceeds
    Arcon also challenges the trial court’s conclusion that the draft escrow agreement
    of October 2020 discussed between Arcon and BRMK was not a modification of the
    LWA and was unenforceable. The trial court found no agreement existed, firstly
    because “[t]o be enforceable, the three parties must have agreed to all material terms.
    There is no evidence of Fidelity’s assent to the terms.” The trial court also found a lack
    of valid consideration from Arcon, as the release of its deed of trust was a preexisting
    covenant under the LWA.
    The existence of a contract must be proved by the party asserting its existence.
    P.E. Sys., LLC v. CPI Corp., 
    176 Wn.2d 198
    , 209, 
    289 P.3d 638
     (2012). An
    enforceable contract requires offer, acceptance, and consideration. Yakima County Fire
    Prot. Dist. No. 12 (W. Valley) v. City of Yakima, 
    122 Wn.2d 371
    , 388-89, 
    858 P.2d 245
    (1993). “As a general rule the performance of, or promise to perform an existing legal
    obligation is not a valid consideration.” Harris v. Morgensen, 
    31 Wn.2d 228
    , 240, 
    196 P.2d 317
     (1948) (quoting 17 C.J.S. Contracts § 110 (1939)). Modification of an existing
    contract is not supported by consideration if “one party is to perform some additional
    obligation while the other party is simply to perform that which he promised in the
    5
    BRMK contends that the alleged underpayments to Arcon were a result of inadvertent
    and non-material accounting errors that did not rise to a level of material breach.
    20
    83925-0-I/21
    original contract.” Rosellini v. Banchero, 
    83 Wn.2d 268
    , 273, 
    517 P.2d 955
     (1974).
    However, a “breach or non-performance of a promise by one party to a bilateral
    contract, so material as to justify a refusal of the other party to perform a contractual
    duty, discharges that duty.” Jacks v. Blazer, 
    39 Wn.2d 277
    , 285, 
    235 P.2d 187
     (1951)
    (citing RESTATEMENT (FIRST) OF CONTRACTS § 397 (1932)). Finally, forbearance of a right
    to assert a legal claim “on which there exists a reasonable possibility of recovery” may
    constitute sufficient consideration for a promise. Nat’l Bank of Wash. v. Myers, 
    75 Wn.2d 287
    , 296, 
    450 P.2d 477
     (1969) (citing Nicholson v. Neary, 
    77 Wash. 294
    , 295-
    96, 
    137 P. 492
     (1914)).
    First, it is significant that BRMK does not dispute that it came to agreement with
    Arcon to set aside the sale proceeds of Unit 201 in escrow. In fact, BRMK was
    surprised to learn that the proceeds after the sale were sent directly to BRMK. And it
    maintains on appeal that it has no explanation as to what happened to the draft
    agreement. Thus, BRMK does not deny that it reached an agreement with Arcon, but
    argues that such agreement is unenforceable because the draft agreement was never
    agreed to by Fidelity. However, the fact that a draft agreement indicated that Fidelity
    would be the escrow company to hold the proceeds does not make Fidelity a necessary
    party as to whether BRMK and Arcon modified the LWA as to Unit 201 through offer,
    acceptance and consideration. We agree with Arcon that Fidelity was not a necessary
    party to an informal agreement of terms between Arcon and BRMK with the purpose of
    “subsequently execut[ing] and deliver[ing] . . . [a] more formal contract.” (quoting Morris
    v. Maks, 
    69 Wn. App. 865
    , 872, 
    850 P.2d 1357
     (1993).
    21
    83925-0-I/22
    The question is whether Arcon’s offer to grant a partial release of its ADOT as to
    Unit 201 qualified as consideration considering Arcon already had an obligation to grant
    a partial release of units sold in accordance with the provisions of the LWA. The
    answer to that question remains a genuine issue of material fact. If Arcon is correct that
    BRMK materially breached the LWA and relieved Arcon of its obligation to perform
    under the LWA, then at the time BRMK and Arcon agreed to set aside the proceeds
    from the sale of Unit 201 in exchange for Arcon to grant a partial release of its ADOT as
    to that unit, that promise could be consideration that did not already exist at that time.
    “On summary judgment, the trial court may not weigh the evidence, assess credibility,
    consider the likelihood that the evidence will prove true, or otherwise resolve issues of
    material fact.” Haley v. Amazon.com Services, LLC, 25 Wn. App. 2d 207, 217, 
    522 P.3d 80
     (2022).
    For these reasons, which are different than the trial court’s reasoning, we affirm
    the trial court’s denial of Arcon’s motion for partial summary judgment against BRMK for
    breaching the modified LWA as to Unit 201.
    Third-party Beneficiaries
    Arcon next challenges the trial court’s conclusion that because the Owners were
    third-party beneficiaries to the LWA, they could sue Arcon to enforce the obligation to
    partial releases of deed of trust upon sale of condominium units.
    “A third-party beneficiary is one who, though not a party to the contract, will
    nevertheless receive direct benefits therefrom.” McDonald Constr. Co. v. Murray, 
    5 Wn. App. 68
    , 70, 
    485 P.2d 626
     (1971). “‘The question whether a contract is made for the
    benefit of a third person is one of construction. The intention of the parties in this
    22
    83925-0-I/23
    respect is determined by the terms of the contract as a whole construed in the light of
    the circumstances under which it was made.’” McDonald, 
    5 Wn. App. at 70
     (quoting
    Grand Lodge of Scandinavian Fraternity v. United States Fid. & Guar. Co., 
    2 Wn.2d 561
    , 569, 
    98 P.2d 971
     (1940)). “It is insufficient that performance of a contract may
    benefit a third party; rather, the contract must have been entered for that party’s benefit,
    or the benefit must be a direct result of performance within the parties’ contemplation.”
    Key Dev. Inv., LLC v. Port of Tacoma, 
    173 Wn. App. 1
    , 29, 
    292 P.3d 833
     (2013) (citing
    McDonald, 
    5 Wn. App. at 70
    )). “A third-party beneficiary contract exists when the
    contracting parties, at the time they enter into the contract, intend that the promisor will
    assume a direct obligation to the claimed beneficiary.” Warner v. Design & Build
    Homes, Inc., 
    128 Wn. App. 34
    , 43, 
    114 P.3d 664
     (2005) (citing Postlewait Constr., Inc.,
    v. Great Am. Ins. Companies, 
    106 Wn.2d 96
    , 99, 
    720 P.2d 806
     (1986)). “The test of
    intent is an objective one: Whether performance under the contract necessarily and
    directly benefits the third party.” Warner, 128 Wn. App. at 43 (citing Postlewait Constr.,
    Inc., 
    106 Wn.2d at 99
    ).
    Arcon argues that Capitol, BRMK and Arcon jointly only had one objective and
    that was to figure out how to get paid, not to benefit future condominium owners. But
    Arcon conflates motivation with the type of intent contemplated to create a third-party
    beneficiary. Our Supreme Court in Vikingstad v. Baggott, quoted R.T. Kimbrough,
    Annotation, Right of Third Person to Enforce Contract Between Others for His Benefit,
    
    81 A.L.R. 1271
    , 1287 (1932) in order to explain this distinction:
    23
    83925-0-I/24
    where, under a topic heading entitled, “d. Intention or object of parties;
    direct or incidental benefit,” it is stated:
    If the terms of the contract necessarily require the promisor to confer a
    benefit upon a third person, then the contract, and hence the parties
    thereto, contemplate a benefit to the third person * * * [citation]; and this
    should be sufficient to enable the latter to enforce the contract, although it
    also worked to the advantage of the immediate parties thereto * * *
    [citations], and although the actual purpose motivating the parties in
    making the provision in question was the purely selfish one of benefiting or
    protecting themselves, rather than of benefiting the third person. The
    ‘intent’ which is a prerequisite of the beneficiary’s right to sue is ‘not a
    desire or purpose to confer a particular benefit upon him,’ nor a desire to
    advance his interests, but an intent that the promisor shall assume a direct
    obligation to him. * * * [Citation] So long as the contract necessarily and
    directly benefits the third person, it is immaterial that this protection was
    afforded him, not as an end in itself, but for the sole purpose of securing to
    the promisee some consequent benefit or immunity. In short, the motive,
    purpose, or desire of the parties is a quite different thing from their
    intention. The former is immaterial; the intention, as disclosed by the terms
    of the contract, governs. * * * (Emphasis supplied.)
    
    46 Wn.2d 494
    , 496-97, 
    282 P.2d 824
     (1955) (alterations in original). The parties
    needed not desire to benefit the condominium owners. They simply had to have
    intended that Arcon, the promisor, assume a direct obligation to grant a partial release
    of the ADOT to each buyer of a condominium unit.
    Arcon argues that its circumstance is analogous to the circumstances in
    McDonald, 
    5 Wn. App. at 68
    , and Simons v. Tri-State Const. Co., 
    33 Wn. App. 315
    , 
    655 P.2d 703
     (1982). Both of these cases are distinguishable.
    This court held in McDonald that a prospective tenant of a premises had no third-
    party beneficiary right of action against a contractor for breach of its construction
    contract with the building’s owners. 
    5 Wn. App. at 70-71
    . The construction was
    completed much later than the contracted completion date. Id. at 68. The prospective
    tenant argued that it was a third-party beneficiary because the owners knew it was to
    24
    83925-0-I/25
    become the tenant when the construction project was completed. Id. at 70. We
    explained that any benefit the tenant received flowed from the intervening tenancy
    agreement with the owners, not the construction contract. Id. In other words, the
    contractor contracted to complete the project within a certain amount of time regardless
    of whether the owner chose to lease the property.
    Capitol, BRMK, and Arcon devised a complex agreement by which the insolvent
    Capitol could pay its debts: this required avoiding a mechanic’s lien so that the
    condominium units could be sold. To do this, Arcon was granted a deed of trust as
    security, but in an arrangement where Arcon would grant partial releases of that deed
    as units were sold in accordance with the LWA. None of the contracted parties could
    perform their obligations under the LWA without the buyers of the units, and the new
    owner of a unit would benefit from a title not subject to the ADOT. Unlike the
    prospective tenant in McDonald whose use of the building was dependent on the
    existence of a lease, a unit owner in the instant case benefits from having a title
    unencumbered by the ADOT which is a direct result of performance within the parties’
    contemplation.
    In Simons, 
    33 Wn. App. at 317-18
    , a home owner sued the general contractor of
    a sewer relocation project for the City of Hoquiam. The home owner argued that it was
    a third-party beneficiary because the contract between the general contractor and the
    city had an indemnity clause. “In general, only an indemnitee or someone in his right is
    entitled to sue on a contract of indemnity. Thus, a third party is not entitled to sue on an
    indemnity contract unless he is able to prove the contract is not ‘merely for indemnity,
    but also creates a direct obligation in his favor.’” Id. at 323 (quoting 42 C.J.S. Indemnity
    25
    83925-0-I/26
    § 29 (1944)). Nothing in the contract in Simons suggested that anyone other than the
    city was to benefit from the agreement. Id. at 324. Simons is inapposite.
    A benefit to the Owners, titles unencumbered by the ADOT on purchased
    condominium units, does “flow directly from the contract” rather than being a “merely
    incidental, indirect or consequential” outcome of its performance. McDonald, 
    5 Wn. App. at 70
    . Accordingly, under the facts before us, we affirm the summary judgement
    order determining the Owners to be third-party beneficiaries of the LWA.
    Quieting Title and Permanently Enjoining Foreclosure
    Arcon does not challenge the trial court’s order of a preliminary injunction, 6 but it
    does challenge the trial court’s order permanently enjoining Arcon from foreclosing on
    the condominium units and quieting title.
    Because we have concluded that genuine issues of material fact remain as to
    whether Arcon breached its covenant by not granting partial releases of the ADOT, the
    trial court erred in quieting title and deciding as a matter of law that Arcon should be
    permanently enjoined from exercising its right to foreclose.
    CONCLUSION
    We affirm the summary judgment order determining that the Owners are third-
    party beneficiaries under the LWA. We reverse the summary judgment order
    concluding that the payment formula under the LWA allows for the addition of BRMK’s
    advanced funds. Because genuine issues of material fact remain, we reverse the
    summary judgment order 1) finding that Arcon breached its covenant to grant partial
    6
    The trial court on September 7, 2021 granted a request for an injunction against a
    foreclosure sale by Arcon. That order was entered to “preserve the status quo pending the final
    outcome of [the] case” in accordance with CR 65.
    26
    83925-0-I/27
    releases of the ADOT; 2) permanently enjoining Arcon from exercising its right to
    foreclose under the ADOT; and 3) quieting titles. However, we affirm, for different
    reasons, the trial court’s denial of Arcon’s partial summary judgment motion requesting
    the court conclude that BRMK breached a modification of the LWA as to Unit 201. 7
    Affirm in part, reverse in part and remand. 8
    WE CONCUR:
    7
    Arcon asks this court to address whether Arcon is required to indemnify Fidelity for
    losses under its Indemnity Agreement. Though Fidelity raised this issue in its reply brief in
    support of the motion for a preliminary injunction, no order to that effect is part of this
    discretionary review and Arcon does not cite to a ruling by the superior court as to this issue.
    The matter is not before us warranting review.
    8
    Both Arcon and BRMK request attorney fees as the prevailing party under the attorney
    fees provision of the LWA. However, “this is a petition for discretionary review of interlocutory
    orders. There has been no final judgment and, therefore, there has been established no
    prevailing party.” Estate of Carter, 11 Wn. App. 2d at 589 n.7 (2019). Accordingly, we deny
    both requests at this time. On remand, the trial court is directed to determine what, if any,
    award either party is entitled to for its appellate efforts in the event there is a prevailing party.
    RAP 18.1(e).
    27
    

Document Info

Docket Number: 83925-0

Filed Date: 12/18/2023

Precedential Status: Non-Precedential

Modified Date: 12/18/2023