No. 55042-0-I.The Court of Appeals of Washington, Division One.
October 9, 2006.
Appeal from a judgment of the Superior Court for King County, No. 03-2-02008-7, Laura Gene Middaugh, J., entered September 24, 2004.
Affirmed by unpublished per curiam opinion.
Counsel for Appellant/Cross-Respondent, John Edward Woodbery, Woodbery Law Group PS, 800 Bellevue Way Ne Ste 400, Bellevue, WA, 98004-4273.
Counsel for Respondent/Cross-Appellant, John Hughes O’rourke, Attorney at Law, 618 S 223rd Ste 6, Po Box 98741, Seattle, WA, 98198-0741.
Carol Ann Kemp, Attorney at Law, 820 Sw 148th St, Burien, WA, 98166-1861.
PER CURIAM.
In 1991, Theodore Rosengren agreed to personally guarantee a 15-year loan to Weona Building Corporation (Weona). In consideration for the guarantee, Rosengren received shares of Weona stock. Less than five years later, Rosengren withdrew his guarantee and had no further contact with Weona until 2003, when he filed this action seeking a share of the proceeds from a building sale. The trial court determined that Rosengren was not entitled to share in the proceeds. Finding that the evidence supports the trial court’s decision, we affirm. We also reject Weona’s cross-appeal, which challenges the trial court’s determination that Rosengren was entitled to repayment of a loan.
Rosengren filed this action for declaratory relief on March 14, 2003, seeking a determination of his ownership interests in Weona Building Corporation. Rosengren alleged that as a Weona shareholder, he was entitled to a proportionate share of the proceeds from the corporate sale of a commercial building.
At trial, Rosengren testified that in the early 1990s, he was the owner of Sea Sausage International Enterprises, a seafood processing company in Tukwila. In early 1991, Rosengren was looking for a new space for Sea Sausage and contacted Ed Chapin, the president and a shareholder of Weona. Weona’s sole asset was a commercial building in Sea-Tac, where Chapin also leased space. At the time, Weona was experiencing significant financial difficulties and was seeking to refinance its building loan and pay off some of its investors.
Rosengren eventually agreed to move Sea Sausage into Weona’s building and to personally guarantee a 15-year bank loan from Security Pacific Bank that would be used to refinance Weona’s debt. Under the terms of the loan, Security Pacific was permitted to review the interest rate and security every five years. The bank required both Rosengren and Chapin to personally guarantee the loan. Although it was not made a written condition of the loan, Rosengren was aware that the bank also required the Weona building to be occupied primarily by owners of the corporation.
Sea Sausage moved into the Weona building in March 1991. In May 1991, Rosengren, on behalf of Sea Sausage, executed a five-year lease for the space. Rosengren claimed that he moved into the building solely to facilitate the refinancing and that he had no further obligation to remain a tenant.
On August 30, 1991, Rosengren, Chapin, and several Weona creditors entered into an Agreement for the Purchase of Shares of Weona Building Corporation (Shareholder Agreement). Among other things, the Shareholder Agreement provided that in consideration for their personal guarantees of the Security Pacific loan, Chapin and Rosengren would each receive 581 voting shares of Weona? 9.08 percent of the total issued shares. All remaining creditors received non-voting shares in proportion to the amount of Weona’s debt.
Under the terms of the Shareholder Agreement, voting shareholders had the exclusive right to share in the equity appreciation of the company’s real property. The Shareholder Agreement further recited that
It is understood that the principal tenants in the Building are the voting Shareholders or business entities of which they are the owner or principal. Their status as tenants and voting Shareholders will facilitate greatly the obtaining of necessary refinancing of the Building. Notwithstanding the dual role of voting Shareholders as tenants, it is understood by them as well as the non-voting Shareholders, that rentals will be maintained at a level comparable to that of similar quality space in the general vicinity.[1]
Voting shareholders also had the right to repurchase non-voting shares at an established value and convert them into voting shares. After execution of the Shareholder Agreement, Chapin and Rosengren were the primary tenants of the building and the sole Weona shareholders with voting stock. In January 1992, the Board of Directors and shareholders ratified Weona’s refinancing plan.
In October 1995, Sea Sausage declared bankruptcy. By March 1996, several months before the conclusion of its lease, Sea Sausage vacated the Weona building, leaving unpaid rent and utilities. Although Chapin and Rosengren had agreed that they would personally guarantee their leases, only Chapin executed such a guarantee. After vacating the premises, Rosengren made no attempt to contact Chapin or Weona, explaining that “[t]here was no need to.” Rosengren acknowledged receiving a single communication from Weona, offering him the right, in accordance with the terms of the Shareholder Agreement, to purchase certain shares of non-voting stock, an offer he ignored. Rosengren denied receiving any notices about company meetings or any telephone calls about Weona business.
In early 1997, Security Pacific conducted its first five-year review of the loan. Linda Morris, a bank employee, testified that she repeatedly attempted to contact Rosengren by letter and telephone, but he never returned the messages and did not participate in the review process. The bank eventually renewed the loan after removing Rosengren as a guarantor, leaving Chapin as the sole guarantor.
Ed Chapin testified that occupancy of the building by the principal owners was a condition of the bank loan and that he had discussed this requirement with Rosengren. He and Rosengren both understood that the refinancing plan required a long-term commitment for the building’s value to appreciate. Chapin also understood the Shareholder Agreement to require that voting shareholders be tenants. Chapin called Rosengren several times after he abandoned the lease, but Rosengren never responded to the messages. Chapin stated that Rosengren was also sent notice of a shareholder meeting that was held on June 12, 1996. At the meeting, new corporate officers were chosen, and Rosengren’s stock was converted to non-voting stock. Chapin estimated that had Rosengren remained a tenant in the building, he would have contributed at least $250,000 to Weona’s income.
In 2003, following a condemnation proceeding, Weona received $1,250,000 from the Port of Seattle for its building. Rosengren then filed this action.
After hearing the testimony, the trial court found that Rosengren had received his shares in consideration for providing a personal guarantee for the 15-year bank loan. Although the court found that the evidence did not establish owner-occupancy as consideration for Rosengren’s shares, the court construed the Shareholder Agreement to require that only owner-occupiers could be voting shareholders. The court determined that by refusing to participate in the loan renewal process, Rosengren had effectively removed himself as a guarantor “and failed to provide the consideration for the shares that had been agreed upon.” The court also found that Rosengren had received proper notice of the loan renewal process and shareholder meeting and rejected his testimony to the contrary as not credible. The court concluded that Rosengren owned no shares in Weona and was therefore not entitled to any proceeds from the sale of the building.
DECISION
Rosengren’s primary contention on appeal is that the trial court erred in concluding there was a failure of consideration for his acquisition of the Weona stock. He argues that neither the evidence nor the findings support the court’s determination that only owner-occupiers were voting shareholders and that the court essentially inserted a new provision into the Shareholder Agreement that automatically terminated his voting rights when he vacated the premises.
In reviewing the trial court’s decision, we first determine whether substantial evidence supports the trial court’s findings of fact; if so, we then consider whether those findings of fact support the court’s conclusions of law. Landmark Dev., Inc. v. City of Roy, 138 Wn.2d 561, 573, 980 P.2d 1234 (1999). Rosengren maintains that under the terms of the Shareholder Agreement, he received the voting shares solely in consideration for his personal guarantee of the bank loan. He reasons that because he provided the personal guarantee, Weona received the bank loan, and he remained a tenant for nearly five years, the trial court’s determination that there was a failure of consideration is contrary to law and cannot stand. See generally King v. Riveland, 125 Wn.2d 500, 505, 886 P.2d 160 (1994) (bargained for promise may constitute consideration); Browning v. Johnson, 70 Wn.2d 145, 147, 422 P.2d 314, 430 P.2d 591 (1967) (courts are generally reluctant to inquire into the sufficiency of consideration). But Rosengren’s arguments fail when viewed in light of the other provisions of the Shareholder Agreement and the surrounding circumstances.
It is undisputed that as part of the Shareholder Agreement, Rosengren agreed to personally guarantee a 15-year bank loan. Under the terms of that loan, the bank would review both the interest rate and security every five years and decide whether to continue the loan. Consequently, as the trial court noted, because the bank required the principal owners to be tenants in the building, Chapin and Rosengren risked being called on to perform their guarantee if they failed to comply with that requirement. Moreover, in addition to reciting the consideration for the award of voting shares, the Shareholder Agreement provided that only Chapin and Rosengren would receive voting shares, that the principal tenants were the voting shareholders, and that only voting shareholders would share in the equity appreciation of Weona’s real property.
Viewed together, the foregoing circumstances establish that the personal guarantees were an ongoing obligation. Rosengren’s reliance on the claim that he merely agreed to personally guarantee the new loan but that the Shareholder Agreement “was silent as to how long he promised to do that” is therefore not persuasive. Under the circumstances, including the critical nature of the personal guarantees for both Weona’s refinancing plan and corporate structure, Rosengren’s complete failure to participate in the loan review process and withdrawal of his personal guarantee before even one-third of the loan period had passed support the trial court’s determination that there was a failure of consideration.
Rosengren does not dispute the general proposition that upon a failure of consideration, Weona was entitled to reclaim its stock. Cf. Finley v. Curley, 54 Wn. App. 548, 774 P.2d 542
(1989) (upon failure of consideration, corporation entitled to reclaim stock). He asserts, however, that the trial court erred in deciding the case on this basis because Weona failed to raise the affirmative defense in its pleadings. See CR 8(c); Alexander v. Food Servs. of Am., Inc., 76 Wn. App. 425, 428-29, 886 P.2d 231 (1994) (failure to raise affirmative defense in timely manner results in waiver of the defense). But contrary to Rosengren’s assertions, Weona expressly raised the defense in both its summary judgment motion and its trial brief, arguing that Rosengren’s claim to the company shares “fails for lack of consideration.” Because Rosengren raised no objection to the court’s consideration of these arguments, he has waived any challenge to Weona’s failure to comply with the pleading requirements of CR 8(c). Mahoney v. Tingley, 85 Wn.2d 95, 100, 529 P.2d 1068 (1975).
Rosengren’s arguments on appeal are based solely on the claim that as a voting shareholder, he was entitled to a share of the proceeds of the sale of Weona’s building. Because Rosengren failed to establish that he was a voting shareholder in accordance with the terms of the Shareholder Agreement, he was not entitled to any proceeds.
WEONA’S CROSS-APPEAL
Weona concedes that the trial court correctly found that Rosengren had loaned the company $5,000 in March 1991 by paying for a soil test, but asserts the court erred in concluding that Rosengren was entitled to repayment of the loan. Weona argues that the statute of limitations for enforcement of the debt has expired. Although Rosengren has not submitted a response, we nonetheless reject Weona’s cross-appeal.
In determining that Rosengren was entitled to repayment of the $5,000 loan, the trial court found that the parties had not agreed to specific terms for repayment but that loans were generally “repaid when able.” The court then found that funds were not available for repayment until Weona received the proceeds from the building sale. Consequently, the court may well have determined that the loan was not a “demand” loan because the parties had agreed to a delay in repayment. See Wallace v. Kuehner, 111 Wn. App. 809, 819, 46 P.3d 823 (2002). Because Weona has not challenged or addressed the apparent basis for the trial court’s decision, we decline to consider its cross-appeal.
The trial court’s decision is affirmed.
BAKER and DWYER, JJ.