Opinion
No. 58766-8-I.
October 29, 2007.
Appeal from a judgment of the Superior Court for King County, No. 05-2-05798-0, John P. Erlick, J., entered August 21, 2006.
Affirmed by unpublished opinion per Agid, J., concurred in by Coleman and Baker, JJ.
Raymond and Arlene Springer appeal summary judgment in favor of GE Commercial Finance Business Property Corporation which sought to collect from the Springers as guarantors of a commercial loan. We affirm.
I.
Parsippany Perk, L.L.C. (Parsippany) was formed to build and operate a Perkins restaurant in New Jersey. In February 2001, Parsippany entered into a master loan agreement with GE Commercial Finance Business Property Corporation (GE), and executed a term note for $397,750. The loan was secured by restaurant equipment. Raymond Springer, one of the two owners of Parsippany, also executed a personal guaranty of all obligations then owed by the company to GE, as well as any obligations incurred thereafter. In addition, Springer signed a letter stating that he had read the personal guaranty and understood all its terms and conditions.
Springer's wife, Arlene Springer, also signed the personal guaranty, acknowledging that Raymond Springer was acting on behalf of the marital community.
Both the master loan agreement and the personal guaranty specified that they would be governed by Washington law. The personal guaranty and term note additionally stipulated that the signers would submit to Washington jurisdiction in any proceeding arising out of the agreements. The personal guaranty was a continuing agreement, covering all obligations until the guarantor gave written notice to GE of withdrawal.
In August 2001, Parsippany and GE entered into another loan agreement, this time secured by a leasehold mortgage on the restaurant. Parsippany executed a promissory note for $850,000. Springer executed a second personal guaranty of all obligations owed to GE under the promissory note. The loan agreement and personal guaranty specified that New Jersey law would control. The promissory note specified New Jersey law and jurisdiction. Neither document purported to terminate or replace the master loan agreement.
By the end of 2001, Springer had resigned from Parsippany and sold his interest in the company to the co-owner. The co-owner agreed to make all payments to GE, and to indemnify Springer from any liability.
Parsippany subsequently fell behind in its payments to both GE and its landlord. Based on the default, GE notified Springer and his one-time co-owner that the restaurant fixtures and equipment would be sold at an Article 9 sale. The equipment was subsequently sold to the landlord for $85,000. Ultimately, the landlord terminated Parsippany's lease, and the co-owner filed for personal bankruptcy.
Parsippany owed the landlord significant back rent and other charges amounting to more than $170,000. A dispute arose between GE and the landlord over the status of the lease. The landlord asserted that because the lease had been terminated, GE's interest was void, while GE asserted that it retained the right to reinstate the lease by curing the default.
Reluctant to assume the growing debt in order to reinstate the lease, and skeptical of its ability to re-lease the restaurant to another operator on favorable terms, GE chose to terminate its interest in the leasehold mortgage, and settled with the landlord. Under the settlement, the landlord agreed to pay GE $165,000 in exchange for the release of GE's claimed lien on the lease.
GE applied the proceeds from the Article 9 fixtures sale and the settlement payment to Parsippany's debt, then sued the Springers on the personal guaranties for the remaining amount due under the promissory notes. The trial court dismissed the Springers' motion to dismiss for lack of jurisdiction, and granted summary judgment in favor of GE. The Springers appeal.
II.
Personal Jurisdiction We review decisions on the enforceability of contractual forum selection clauses under an abuse of discretion standard. Under this standard of review, a trial court abuses its discretion if its decision is manifestly unreasonable or based on untenable grounds.
Dix v. ICT Group, Inc., 160 Wn.2d 826, 833, 161 P.3d 1016 (2007).
Dix, 160 Wn.2d at 833.
The Springers argue that they lacked the minimum contacts necessary for Washington State to have personal jurisdiction over them. However, loan documents signed by the Springers contain forum selection clauses specifying Washington State as the forum where any legal dispute is to be resolved. The master loan agreement, from which all subsequent loan documents flowed, contained a choice of law clause specifying that Washington law would control. Under the first term note signed on behalf of Parsippany, the debtors "irrevocably" submitted to the jurisdiction of any state or federal court sitting in Seattle, King County, Washington. The first personal guaranty, signed by both Raymond and Arlene Springer, states that the signers submitted to jurisdiction in any state or federal court in the state of Washington. The contracts stipulated that by signing the guaranty, the Springers explicitly waived any objection to venue and any claim that a Washington court is an inconvenient forum.
Washington requires enforcement of forum selection clauses unless they are unreasonable and unjust. Particularly in the commercial context, the enforcement of forum selection clauses serves the salutary purpose of enhancing contractual predictability. A forum selection clause is presumptively valid and enforceable, and the party resisting it has the burden of demonstrating that it is unreasonable, even where a forum selection clause establishes a remote forum for resolution of conflicts. Absent evidence of fraud, undue influence, or unfair bargaining power, courts are reluctant to invalidate forum selection clauses as they increase contractual predictability, and may reduce costs of doing business.
Voicelink Data Servs., Inc. v. Datapulse, Inc., 86 Wn. App. 613, 617, 937 P.2d 1158 (1997).
Voicelink Data Servs., 86 Wn. App. at 617.
Dix, 160 Wn.2d at 834-835; Voicelink Data Servs., 86 Wn. App. at 617-18.
Dix, 160 Wn.2d 834-35.
Additionally, the law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue. The fact that the chosen state is also declared in the contract to be the state of the governing law "'might be thought to suggest that the parties would have wished to have the action brought in the chosen state even in the case of substantial inconvenience.'" The legislature specifically approved forum selection clauses by mandating that such agreements will determine venue, even if grounds exist to locate the forum elsewhere.
O'Brien v. Shearson Hayden Stone, Inc., 90 Wn.2d 680, 685, 586 P.2d 830 (1978).
Voicelink Data Servs., 86 Wn. App. at 617 n. 1 (quoting Restatement (Second) Conflict of Laws § 80, cmt. c. (Supp. 1989)).
Keystone Masonry, Inc. v. Garco Constr., Inc., 135 Wn. App. 927, 933, 147 P.3d 610 (2006).
Later documents signed by Raymond Springer specify New Jersey law and jurisdiction. The promissory note signed on behalf of Parsippany, for example, specifies both New Jersey law and jurisdiction. That document bound only the corporation. The second personal guaranty states that it shall be governed by New Jersey law, but does not impose New Jersey jurisdiction. The second guaranty, furthermore, does not purport to supersede the first guaranty. Indeed, the second guaranty specifies that the "[g]uarantors hereby consent to the terms and conditions of all agreements heretofore . . . made between GE Capital and Borrower."
By signing the first guaranty, the Springers submitted to personal jurisdiction in Washington. The guaranty bound the Springers to honor any and all obligations they had to GE, including those incurred after signing. The first guaranty specifically waived objection to venue and any claim that Washington jurisdiction is an inconvenient forum. The Springers have made no showing of fraud or undue influence. On appeal, they argue that their resources and strength pale in comparison to those of GE. Unequal bargaining power, however, does not in and of itself invalidate a forum selection clause. We hold that Washington State has jurisdiction over the Springers, and the trial court did not abuse its discretion in enforcing the forum selection clause.
Murphy v. Schneider Nat'l, Inc., 362 F.3d 1133, 1141 (2004) (citing Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595, 111 S. Ct. 1511, 113 L. Ed. 2d 622 (1991)).
Article 9 of the Uniform Commercial Code (UCC)
This court reviews a summary judgment order de novo, engaging in the same inquiry as the trial court. Summary judgment is proper if the court, viewing all facts and reasonable inferences in the light most favorable to the non-moving party finds no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.
Ellis v. City of Seattle, 142 Wn.2d 450, 458, 13 P.3d 1065 (2000) (quoting Trimble v. Wash. State Univ., 140 Wn.2d 88, 92-93, 993 P.2d 259 (2000)).
CR 56(c); Ellis, 142 Wn.2d at 458 (quoting Trimble, 140 Wn.2d at 92-93).
The Springers argue that GE's release of the leasehold mortgage and its settlement with the landlord violated Article 9 of the UCC which prohibits the commercially unreasonable disposition of collateral.
RCW 62A.9A-602,-607,-610,-623,-624.
There were two distributions of funds under the loan agreements with GE. The first, for $397,750, was an Article 9 fixtures loan. The second, for $850,000, was secured by a leasehold mortgage.
Article 9 of the UCC does not apply to the transfer of interest in real property, including leases or rents. With few exceptions (nonconsensual agricultural liens being one), Article 9 applies only to consensual security interests in personal property, and excludes landlord's liens and leases and most other interests in or liens on real property. The Commercial Code simply does not govern the creation of a real estate mortgage, including a leasehold mortgage. "[T]he Article 9 scheme is both straightforward and clear: if the security interest constitutes an interest in or lien on real estate, neither its creation nor its transfer is governed by Article 9." The unequivocal language of Article 9 makes it clear that a leasehold is not subject to the provisions of Article 9 even though it might be listed in a security agreement.
RCW 62A.9A-109 cmt. 10.
Lovelady v. Bryson Escrow, Inc., 32 Cal. Rptr. 2d 371, 373 (Cal.App. 1994).
8 William D. Hawkland et. al., Uniform Commercial Code Series § 9-104:11 (2001).
IAMA Corp. v. Wham, 669 P.2d 1076, 1079 (1983).
The initial fixtures loan of $397,750 was controlled by Article 9, and was so secured by means of a fixture filing. In accordance with Article 9 requirements, the Springers were notified of the pending sale of fixtures after Parsippany went into default.
The second loan of $850,000 was secured by the leasehold mortgage, and was thus not subject to the notification and disposition provisions of Article 9.
By the terms of the first guaranty, the Springers waived demand, notice of default or nonperformance by Parsippany, and agreed that GE could exchange, waive, or release any collateral without affecting the Springers' liability.
Likewise, under the second guaranty, the Springers waived notice of default, demand, notice of nonpayment, the release of collateral, or the amount GE might bid at a foreclosure sale.
Contracts, such as that between the Springers and GE are enforceable according to their terms, and the parties are bound by the contract as signed. This court has previously addressed waiver and release in a guaranty. In Seattle-First National Bank v. W. Coast Rubber, Inc., we noted that the guarantor consented "to the Bank to make such renewals and extensions as the Bank at its option may choose to grant or accept; and . . . release any collateral which it may now or hereafter hold." We held that a release of collateral pursuant to a waiver does not require the consent of the guarantor.
Max L. Wells Trust by Horning v. Grand Cent. Sauna Hot Tub Co. of Seattle, 62 Wn. App. 593, 602, 815 P.2d 284 (1991).
41 Wn. App. 604, 608, 705 P.2d 800 (1985).
Seattle-First Nat'l Bank, 41 Wn. App. at 608.
Seattle-First Nat'l Bank, 41 Wn. App. at 608.
The release of the leasehold mortgage was not subject to Article 9 of the UCC, and the release was allowed under the provisions of the guaranties signed by the Springers.
The Springers also cite New Jersey's foreclosure-first and anti-deficiency statutes. As they did not make this argument to the court below, we will not consider it. In any event, the second guaranty waived the right to assert those defenses.
Equitable Relief
The Springers argue that they are entitled to equitable relief from GE's actions. In doing so, they make intimations of bad faith, inside dealing, and wrongful conduct, and recite a series of offers, counter-offers, and rejections pertaining to the abandoned restaurant.
It is a well-established rule that an equitable remedy is an extraordinary, not ordinary, form of relief. A court will grant equitable relief only when there is a showing that a party is entitled to a remedy and the remedy at law is inadequate.
Sorenson v. Pyeatt, 158 Wn.2d 523, 532, 146 P.3d 1172 (2006).
Sorenson, 158 Wn.2d at 531.
Good faith is defined by the UCC as "honesty in fact in the conduct or transaction concerned." In the context of commercial loans, the good faith requirement does not impose upon a lender obligations that alter the terms of its deal or preclude it Page 10 from exercising its bargained-for rights.
National Westminster Bank N.J. v. Lomker, 649 A.2d 1328, 1331 (1994).
The UCC requirement of contractual fair dealing is set forth in RCW 62A.1-203. The duty of good faith and fair dealing is implied in every contract. This duty obligates the parties to cooperate with each other so that each may obtain the full benefit of performance. However, the duty of good faith relates only to the performance of a specific contract term and does not require the party to accept any additional obligations. Although the duty of good faith and fair dealing is implied in all existing contracts, there is no "free-floating" duty of good faith and fair dealing that is unattached to an existing contractual provision.
Badgett v. Sec. State Bank, 116 Wn.2d 563, 569, 807 P.2d 356 (1991).
Badgett, 116 Wn.2d at 569.
Badgett, 116 Wn.2d at 569.
Keystone Land Dev. Co. v. Xerox Corp., 152 Wn.2d 171, 177, 94 P.3d 945 (2004).
As discussed above, under the terms of the personal guaranties GE could release any collateral without the Springers' consent and without affecting their liability. Notwithstanding the Springers' assertions of bad faith, GE acted within its contractual rights in releasing its interest in the leasehold mortgage. There is nothing in the record to lead this court to take the extraordinary step of granting equitable relief which conflicts with the terms of the contracts between the parties.
Motion to Correct Error
The Springers assign error to the trial court's order denying their motion to correct a purported error in the judgment. We review a court's order pursuant to a Court Rule (CR) 60(a) motion to correct a "clerical" mistake under the abuse of Page 11 discretion standard.
Presidential Estates Apt. Assoc. v. Barrett, 129 Wn.2d 320, 326, 917 P.2d 100 (1996).
In its September 5, 2006 order granting partial summary judgment, the court ruled that Raymond Springer and the marital community of Raymond Springer and Arlene Springer were liable under the first guaranty. It further ruled that Raymond Springer was liable under the second guaranty. It specified that Arlene Springer was not personally or individually liable under either guaranty.
Shortly thereafter, the trial court held a hearing on damages, and entered judgment in favor of GE against Raymond Springer and the marital community, finding the Springers liable for the repayment of all sums due under the equipment promissory note and the real estate promissory note.
Almost four months after the entry of judgment, the Springers filed a motion under CR 60(a) to correct a purported clerical mistake.
The Springers argue that the judgment is inconsistent with the summary judgment order on liability, which found that Raymond Springer and the marital community were liable under the first guaranty and that Raymond Springer was liable under the second guaranty.
CR 60(a) allows a trial court to grant relief from judgments only for clerical mistakes. It does not permit correction of judicial errors. A judicial error involves an issue of substance; whereas, a clerical error involves a mere mechanical mistake. The test for distinguishing between "judicial" and "clerical" error is whether, based on the record, the judgment embodies the trial court's intention.
Presidential Estates, 129 Wn.2d at 326.
Marchel v. Bunger, 13 Wn. App. 81, 84, 533 P.2d 406 (1975).
Marchel, 13 Wn. App. at 84.
The first guaranty is a continuing guaranty agreement, controlling obligations incurred after its signing. Arlene Springer signed that guaranty acknowledging that Raymond Springer was acting on behalf of the marital community. The final judgment issued by the trial court is in accord with that guaranty. The court did not abuse its discretion in denying the Springer's CR 60(a) motion.
Materials Struck From the Record
The Springers' opening brief cited to materials struck from the record by the trial court under ER 408. We have not considered the stricken materials.
Attorney Fees
Both guaranties provide that the Springers will pay all costs and expenses which may be incurred by GE in the enforcement of the guaranties. GE waived its fees and costs at trial below. In their reply brief, the Springers argue that GE's waiver at trial bars collection of its fees and costs on appeal. There was no waiver. Had GE wished to waive fees and costs in the event of an appeal, it would have so stated. GE is awarded its reasonable attorney fees and costs incurred on appeal.
AFFIRMED.