Opinion
No. 22994-7-III
Filed: March 24, 2005 UNPUBLISHED OPINION
Appeal from Superior Court of Grant County. Docket No: 02-2-01288-1. Judgment or order under review. Date filed: 04/22/2004. Judge signing: Hon. Ken L Jorgensen.
Counsel for Appellant(s), Michael Rex Tabler, Attorney at Law, 56 C St NW, PO Box 876, Ephrata, WA 98823-0876.
Counsel for Respondent/Cross-Appellant, Richard Jerabek Jr, Davis Arneil Law Firm, PO Box 2136, Wenatchee, WA 98807-2136.
Erik K Wahlquist, Attorney at Law, 617 Washington, PO Box 2136, Wenatchee, WA 98807-2136.
UNPUBLISHED OPINION
We will enforce an unambiguous agreement as a matter of law. When the subject matter of the suit is the interpretation of a written agreement, inherent issues of `integration, ambiguity, plain meaning and parol evidence' will generally render summary judgment inappropriate. Berg v. Hudesman, 115 Wn.2d 657, 663, 671, 801 P.2d 222 (1990). Those issues require findings on the facts and circumstances to discover the intent of the parties. The agreement that is the subject of this dispute is one such agreement. It is denominated a `guarantee' but the actual language suggests an unconditional joint and several obligation to pay debts (the debts are part of criminal sanctions). The respondents call it a true guarantee and say that, therefore, default by the primary obligor was a condition precedent to their obligation to pay. The appellants call it an unconditional joint and several obligation — period. The parties disagree about their mutual intent, and their intent is not clear from the document itself. We, accordingly, reverse the trial court's summary judgment and remand for trial.
FACTS
Steven Adams bought Basin Tree Service, Inc. from his father, Lee Adams, in 1990. Lee then started a new company, Best Tree Service, Inc. Steven and Basin Tree successfully bid on federal brush control contracts with the Bonneville Power Administration. Lee agreed not to bid on these contracts in exchange for half the profits. This is `bid-rigging' and a federal offense. And the United States Department of Justice began an investigation. Lee Adams sold Best to Daniel Nelson in 1997. Daniel was employed by Steven at Basin Tree.
The United States indicted Best and unnamed others for conspiring to defraud the U.S. The U.S. Department of Justice negotiated with Steven, Daniel, Basin Tree, and Best, and their lawyers. They reached a plea agreement. The government agreed to proceed solely against the corporation, Best, and not name Steven or Daniel as defendants. The plea agreement called for Best to pay $100,000 in fines to the United States, over five years. Best also agreed to pay $200,000 in restitution to the Bonneville Power Administration (BPA), payable in cash or services.
The United States conditioned the plea agreement on a collateral agreement by Lee, Steven, and Daniel to guarantee Best's performance. The parties do not agree on whether Lee was also a target of the criminal investigation. Steven and Daniel allege that, by conference call during the negotiation session, Lee orally agreed to pay the $100,000 fine. This was confirmed in a letter from Steven's lawyer. According to Steven, Lee agreed (1) to sign the collateral agreement with the U.S. as a co-guarantor and (2) to assume an absolute, unconditional obligation to Daniel and Steven to pay $100,000. Clerk's Papers (CP) at 62, 80, 85. Lee says Steven told him on December 14, 1999 that he, Steven, was in trouble and needed Lee's help. Lee says he did not agree to `assume responsibility for paying the $100,000 fine. . . . I did tell Steven that I would help him. But I assumed that this help would last only until he was able to get back on his feet financially.' CP at 187.
Lee signed the collateral agreement. The Agreement and the Dispute
Daniel Nelson, Steven Adams, and Lee Adams ultimately signed the following as part of the plea agreement:
GUARANTEE OF PAYMENT OF FINE AND RESTITUTION
Due to Best's current precarious financial condition, the undersigned, as option holders of, or current and former owners of either equity or controlling interests in, Best agree to be jointly and severally liable to the United States for payment of the fine imposed on Best pursuant to the attached Plea Agreement. In addition, the undersigned agree to be jointly and severally liable to the BPA for payment of the restitution agreed to in the attached Plea Agreement.
CP at 57. The dispute here is over the effect of this agreement. Lee contends that they intended the agreement to be just what it says it is — a true guarantee — that is, a secondary obligation to pay in the event Best fails to pay. On the other hand, Steven and Daniel contend it was mutually understood from the outset that Best could pay nothing and that default by Best was never an option because it would mean criminal sanctions for Lee as well as Steven and Daniel. For that reason, they maintain, the parties always intended for the agreement to create primary liability — that is, all parties were jointly and severally liable for the debt.
Lee paid the United States $5,000 in 2000 and $20,000 in 2001, the amounts due on the fine pursuant to a five-year payment schedule. But in 2002, Lee refused to make another $20,000 payment. Daniel made up the difference by writing a personal check to Best. Basin Tree wrote Best a check to pay the $20,000 due on the fines in 2003. These payments kept Best out of default. Best, Daniel, and Steven sued Lee and Barbara Adams for contribution, based on (a) the written joint and several liability guarantee agreement and (b) Lee's alleged oral agreement to assume absolute liability for $100,000. Lee answered that, under the law of guarantee, he had no obligation under this collateral agreement absent proof of default by the primary obligor, Best. Lee also counterclaimed against Steven for trespass, nuisance, and damages caused by an allegedly unlawful entry onto Lee's land by Steven to dump herbicides. The counterclaim was factually unrelated to the dispute over the guarantee.
Everyone moved for summary judgment.
The court denied Steven and Daniel's claim for contribution and entered judgment for Lee. The corporation, Best, was dismissed as a party. The court concluded that the written agreement was a guarantee to the United States, not an absolute joint and several promise to each other; by signing on as guarantor, Lee promised the United States no more than to pay a one-third share of Best's obligation if Best was unable to perform. The court also dismissed Lee's counterclaim. The court concluded that the evidence of trespass was insufficient to survive summary judgment, because Steven's entry onto the property was permissive. Everyone appeals the court's rulings.
DISCUSSION Lee Adams' Obligation
Steven and Daniel seek contribution from Lee. They argue (1) that the written agreement Lee signed was an unconditional promise to pay, not a guarantee conditioned upon Best's default; and (2) that Lee orally agreed to pay regardless of Best's financial position, anyway. Written Agreement
The question is whether this written collateral agreement makes Lee a primary obligor, jointly and severally liable with the cosigners, or whether he is instead a guarantor of Best's performance and only secondarily liable.
We apply the same rules of construction to a guarantee as to any other contract. Sherman, Clay Co. v. Turner, 164 Wash. 257, 261, 2 P.2d 688 (1931). The touchstone of contract interpretation is the intent of the parties. Scott Galvanizing, Inc. v. N.W. EnviroServices, Inc., 120 Wn.2d 573, 580, 844 P.2d 428 (1993). Documents executed together are construed together in ascertaining the parties' intent. In re Estates of Wahl, 99 Wn.2d 828, 831, 664 P.2d 1250 (1983); Heino v. Libby, McNeill Libby, 116 Wash. 148, 151, 205 P. 854 (1921). Extrinsic evidence is admissible as to the circumstances under which the contract was made, to aid the court in ascertaining the parties' intent. Berg v. Hudesman, 115 Wn.2d 657, 667, 801 P.2d 222 (1990).
Under the context rule, the court looks at "the contract as a whole, the subject matter and objective of the contract, all the circumstances surrounding the making of the contract, the subsequent acts and conduct of the parties to the contract, and the reasonableness of respective interpretations advocated by the parties." Id. at 667 (quoting Stender v. Twin City Foods, Inc., 82 Wn.2d 250, 254, 510 P.2d 221 (1973)). This context analysis applies also to surety agreements. Kenney v. Read, 100 Wn. App. 467, 474-75, 997 P.2d 455, 4 P.3d 862 (2000); 72 C.J.S. Principal and Surety sec. 82 (1987) (intent or object of the parties to a suretyship agreement is gathered from the language of the instrument in light of the surrounding facts and circumstances).
The court looks at the parties' objective manifestations of intent, not unilateral or subjective intentions. Go2Net, Inc. v. C. I. Host, Inc., 115 Wn. App. 73, 85, 60 P.3d 1245 (2003). Intent may be established directly or by inference, but any inference must be based solely on objective manifestations. Lynott v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 123 Wn.2d 678, 684, 871 P.2d 146 (1994). The purpose of such evidence is to aid the trial court in interpreting what is contained in the contract, not to prove intent independent of that contract. Berg, 115 Wn.2d at 669. The court does not consider evidence of an intent independent of the contract, or evidence that contradicts or modifies the contract language. Bort v. Parker, 110 Wn. App. 561, 574, 42 P.3d 980 (2002).
Contract interpretation is a question of law solely when the interpretation does not depend on the use of extrinsic evidence, or when the extrinsic evidence leads to a single reasonable inference or conclusion. Tanner Elec. Coop. v. Puget Sound Power Light, 128 Wn.2d 656, 674, 911 P.2d 1301 (1996). Summary judgment is proper, therefore, only if the written contract, viewed in light of the evidence of the parties' other objective manifestations of intent, can have only one reasonable meaning. Hall v. Custom Craft Fixtures, Inc., 87 Wn. App. 1, 9, 937 P.2d 1143 (1997).
Here, the intent of the signatories to this purported guarantee is both disputed and a material fact. If Lee was subject to individual prosecution, as Steven and Daniel contend, it is plausible that the United States, as a party to both the plea and collateral agreements, intended and understood that Lee would actually pay $100,000. An absolute promise is at least plausible also based on the parties' knowledge of Best's `precarious' financial condition at the time the agreement was signed. A contract of guarantee is a collateral undertaking to guarantee the performance of another. It must, then, 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) (quoting 24 Am. Jur. Guaranty sec. 4, at 875-76 (1939)). A guarantee promises a creditor that the guarantor will perform in the event of nonperformance by the debtor. BD Leasing Co. v. Ager, 50 Wn. App. 299, 306, 748 P.2d 652 (1988). In the case of multiple guarantors, the guarantee is not a primary contract between the co-guarantors. It is a collateral promise to the creditor. The guarantors agree to be secondarily liable upon proof of default by the principal debtor. Id.; Wilson Court Ltd. P'ship v. Tony Maroni's, Inc., 134 Wn.2d 692, 702, 952 P.2d 590 (1998). This agreement is labeled a `guarantee.' But that label is not legally conclusive on the essential question here whether this agreement is a guarantee or not. Main v. Taggares, 8 Wn. App. 6, 10, 504 P.2d 309 (1972). The dispositive consideration is, rather, the intent of these parties, an intent clarified by the context in which this agreement was made. Berg, 115 Wn.2d at 669.
We first look to the agreement and its language to discern intent. We look at the whole document. Here, that includes both the heading and the body of the addendum and the plea agreement it is a part of. The heading says guarantee — normally an obligation that arises upon default. But the body of the agreement creates a primary obligation. Neither position here accommodates the whole document. If the document is simply a guarantee, why does the language create primary, not secondary liability? If the agreement is not a guarantee, simply an agreement creating primary liability, why is it called a guarantee? Neither party's statement of intent is consistent with the whole document.
A party's contractual obligation may be conditional. A condition may be express, implied in fact, or constructive (implied in law). Ross v. Harding, 64 Wn.2d 231, 236, 391 P.2d 526 (1964) (citing 5 Samuel Williston, Contracts sec. 668, at 152 (3d ed. 1961); 3A Arthur Linton Corbin, Contracts, sec.sec. 631, 632, at 21, 22 (1960)).
Here, Lee Adams contends that a constructive condition precedent to his performance on the collateral agreement was that Best, Steven Adams, and Daniel Nelson make a good faith effort to perform on the primary obligation in the plea agreement. Absent this, he had no obligation, there was no breach, and no judicial remedy is available. See Ross, 64 Wn.2d at 236 (citing 3A Corbin, supra, sec. 628, at 16).
"Whether a provision in a contract is a condition the nonfulfillment of which excuses performance depends upon the intent of the parties." Walter Implement, Inc. v. Focht, 107 Wn.2d 553, 557, 730 P.2d 1340 (1987) (quoting 5 Williston, supra, sec. 663, at 127). The parties' intent is to be ascertained from "a fair and reasonable construction of the language used in the light of all the surrounding circumstances when they executed the contract." Id. (quoting 5 Williston, supra, sec. 663, at 127).
The actual language of this agreement suggests something other than the standard guarantee. Indeed, the current and former owners appear to assume immediate joint and several liability whether or not Best defaults on the obligations imposed by its plea agreement. The caption of the agreement is then, at least arguably, at odds with the nature of the promises set out in the agreement.
What was intended then is not clear or, at least, not clear enough to resolve by way of summary judgment. Custom Craft, 87 Wn. App. at 9.
Oral Contract
The parties also dispute whether Lee orally agreed outright to pay the full amount of the $100,000 fine assessed against Best. Steven argues that Lee was subject to the same criminal sanctions facing him and Daniel. And indeed it appears that Lee was at least implicated in the illegal conduct that prompted the government's investigation in the first place. CP at 62, 80, 168. And, while the evidence of any oral agreement to pay the $100,000 is modest, we cannot say it is nonexistent.
It is undisputed that federal anti-trust investigators contacted Steven and Daniel, not Lee, and that Lee was not a party to the plea negotiations on December 14, 1999. CP at 61, 168. But Steven asserts that, in the conference call during the negotiation session, Lee orally agreed to pay the $100,000 fine. As evidence of this, Steven produced a letter from his lawyer. CP at 80. The letter purports to confirm that Lee agreed (1) to sign the collateral agreement with the U.S. as a co-guarantor and (2) to assume an absolute, unconditional obligation to Daniel and Steven to pay $100,000. CP at 80, 86. Lee says his son called him on December 14 and said that he, Steven, was in trouble and needed Lee's help. Lee says he did not agree to `assume responsibility for paying the $100,000 fine. . . . I did tell Steven that I would help him. But I assumed that this help would last only until he was able to get back on his feet financially.' CP at 187.
Steven contends that the federal prosecution forced Best to terminate its business activities. Appellant's Br. at 3; CP at 419, 711-14. Lee disputes this. He says Best soon got back on its feet: `By the summer of 2002, it appeared to me that Daniel Nelson and Steven Adams' companies had regained their contracts and were able to pay off their debts.' CP at 187. Lee thought he had no obligation once Steven and Daniel no longer needed his help. CP at 99. And, in fact, Daniel ponied up `Lee's' $20,000 in 2002 and Steven paid it in 2003. CP at 420. Both men wrote checks to Best which actually made the payment to the U.S. CP at 420.
We reverse the summary judgment and remand for trial.
Cross Claim — Lee's Actions Against Steven
Sometime in the spring of 2002, Daniel, acting as Steven's employee and under Steven's direction, entered onto Lee and Barbara Adams' land and dumped chemicals, because Steven was under investigation by the state. Lee's counterclaim alleged that this entry was not authorized. Steven conceded that his parents had not asked him to spray chemicals on the property. Later, Steven told his mother that nothing was going to grow out there for a long time.
The court concluded there was no evidence of dumping. `Given the congenial relationships at the time the weeds were sprayed, reasonable persons could only conclude that entry was permissible.' CP at 668.
Lee contends the court did not view the evidence in the light most favorable to him.
At the time of the summary judgment hearing, Lee had not investigated the extent and duration of the chemical damage. He testified at his deposition that whether he ever would do so depended on the outcome of Steven's suit against him. Asked whether the fact that Steven had sued him was a factor in his decision to file these claims, Lee admitted, `It was part of it. Yes, it was.' CP at 94.
To prevail on his claims, Lee would have to prove by a preponderance of the evidence that Steven's entry was not permissive at the time, and that Steven knew it was not. Winter v. Mackner, 68 Wn.2d 943, 945, 416 P.2d 453 (1966) (trespass); RCW 4.24.630 (statutory land damage — knowledge of lack of authorization). A nuisance claim arising from other dismissed claims will also be dismissed. See, e.g., Kaech v. Lewis County Pub. Util. Dist. No. 1, 106 Wn. App. 260, 282-83, 23 P.3d 529 (2001).
We agree with the superior court that Lee did not show this. Moreover, he produced no evidence of damages. The Washington State Department of Agriculture investigated (at Steven's request) and determined that the complaint did not require any enforcement action. Lee's own expert could not say that the application was negligent or that it did not comply with product label restrictions or other applicable regulations.
We affirm the dismissal of Lee's counterclaim. We reverse the summary judgment and remand the case for trial on the contract claim, entry of appropriate findings of fact on the circumstances and understandings surrounding the agreement, and entry of necessary conclusions of law on the nature of the legal undertaking set out in this agreement.
A majority of the panel has determined that this opinion will not be printed in the Washington Appellate Reports but it will be filed for public record pursuant to RCW 2.06.040.
WE CONCUR: Kurtz, J., Brown, J.