       IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

DEBORAH MCCALLUM, an individual,
                                                                                   o
                                                No. 71137-7-1
                    Appellant,
                                                DIVISION ONE
              v.



GOLF ESCROW CORPORATION, a                                                         \~)

Washington corporation; STERLING                                              V?
FINANCIAL CORPORATION, a
Washington corporation; TRUSTEE
SERVICES, INC., a Washington                    UNPUBLISHED OPINION
corporation; PAMELA J. LANE, an
individual;                                     FILED: December 15, 2014

                    Respondents,

PHILIP D. HINGSTON and DEBBIE
HINGSTON, husband and wife,
HYPERION CAPITAL GROUP, LLC, an
Oregon limited liability company; BANK
OF AMERICA, N.A.; and MORTGAGE
ELECTRONIC REGISTRATION
SYSTEMS, INC., a Delaware
corporation; and FEDERAL HOME
LOAN MORTGAGE CORPORATION,

                    Defendants.



       Becker, J. — This appeal involves an unsecured creditor's attempt to

impose liability upon third parties for the balance owing when her debtor

defaulted. The debtor paid off part of the debt by making the creditor the
No. 71137-7-1/2


beneficiary of a deed of trust without her knowledge. We affirm the summary

judgment dismissal of her claims against the entities that handled that deed of

trust transaction.


       This court reviews an order granting summary judgment de novo,

performing the same inquiry as the trial court. Wilson Court Ltd. P'ship v. Tony

Maroni's. Inc., 134 Wn.2d 692, 698, 952 P.2d 590 (1998). Summary judgment is

properly granted when the pleadings, affidavits, depositions, and admissions on

file demonstrate that there is no genuine issue of material fact. CR 56(c). All

facts and reasonable inferences are considered in a light most favorable to the

nonmoving party, and all questions of law are reviewed de novo. Wilson Court

Ltd.. 134Wn.2dat698.

       The record reflects that the appellant, Deborah McCallum, is an

experienced real estate agent who specialized in locating and marketing

properties for residential development in Edmonds. Her neighbor and friend,

Craig Reimer, worked as a contractor and developer in the Edmonds area. In

2004, McCallum began to loan money to Reimer to be used in his real estate

business, Eaglewood-Homes, Inc. Per the terms of their oral agreement, (1) the

loan was due on demand, (2) Reimer would give a deed of trust against one of

his properties whenever McCallum requested it, (3) the deed would secure the

entire loan balance, and (4) interest would accrue at 1.75 percent over prime per

year. Between 2004 and 2008, McCallum loaned Reimer a total of $800,000.

Reimer periodically made payments of both principal and interest. In spring
No. 71137-7-1/3


2008, the balance owing was $550,000. McCallum asked Reimer to pay off the

loan.


        In July 2008, Reimer refinanced an existing construction loan from Sterling

Savings Bank, a wholly owned subsidiary of respondent Sterling Financial

Corporation, and obtained $890,000.1 Reimer intended to use part of these

proceeds to pay off part of the balance of his debt to McCallum. For reasons

undisclosed in the record, the bank required Reimer to execute a deed of trust

naming McCallum as a beneficiary. Reimer did so, and the deed of trust was

recorded against a Reimer property located at 915 Cedar Street in Edmonds.

The deed of trust designated McCallum as beneficiary and stated that it secured

payment of $320,000. Respondent Trustee Services Inc. was the named trustee.

Later that month, the bank placed the $890,000 in loan proceeds in escrow with

respondent Golf Escrow Corporation. At the bank's request, Golf Escrow issued

a check for $320,000 to McCallum to satisfy the deed of trust in full.

        Reimer gave McCallum the check for $320,000 on July 31, 2008, without

informing her that it was in satisfaction of a deed of trust. McCallum demanded

that Reimer pay the remaining $230,000. Reimer assured her that he would pay

it eventually. McCallum cashed the check the next day. The check was drawn

on an account belonging to Golf Escrow, and it listed an escrow number.

Nevertheless, McCallum remained unaware that she had been, however briefly,

a beneficiary of a deed of trust.




        1 See Clerk's Papers at 205-06 (Debbie Hingston's declaration).

                                               3
No. 71137-7-1/4


      On August 12, 2008, Golf Escrow, through its principal Pamela Lane,

asked Trustee Services to record a reconveyance of the deed of trust. On

September 30, 2008, Trustee Services asked Golf Escrow for a written request

for reconveyance signed by the beneficiary, McCallum. Golf Escrow forwarded

this request to Reimer. On October 28, 2008, Trustee Services received a

request for reconveyance form purportedly signed by McCallum. On October 31,

2008, Trustee Services recorded a full reconveyance. According to McCallum,

her signature on this document was forged and she was never asked to sign a

request for reconveyance.

      In December 2008, McCallum asked Reimer to sign a promissory note

and deeds of trust that her lawyers had drafted to secure the balance of

$230,000. Reimer refused to sign, but he again assured McCallum that he would

continue making payments.

      In fall 2009, Reimer asked McCallum to take a reduction of her loan. She

refused. In December 2009, Reimer stopped making payments. During this

time, the property at 915 Cedar Street was listed for sale at $890,000—the

amount the bank had loaned Reimer. In January 2010, Debbie and Philip

Hingston offered to buy it for $845,000. With the bank's approval of the short

sale, Reimer accepted the offer and the sale closed in May 2010.

      On May 10, 2010, McCallum filed suit against Reimer and Eaglewood.

During discovery, McCallum learned for the first time about the deed of trust

Reimer had executed for her benefit in July 2008.
No. 71137-7-1/5


       McCallum obtained a judgment for the $230,000 balance plus interest, but

she was unable to collect it. Reimer and his wife received a discharge in

bankruptcy in August 2011.

       On October 29, 2012, McCallum filed the present lawsuit. All defendants

obtained dismissal on summary judgment, and McCallum filed this appeal. After

a stipulated dismissal of several other respondents, the remaining respondents

are Trustee Services, Golf Escrow, Pamela Lane, and Sterling Financial.

McCallum asserts that these respondents breached fiduciary, statutory, and

contractual duties by failing to contact her directly to verify the terms of her loan

to Reimer and failing to obtain from her a valid, unforged request for

reconveyance.

       For purposes of summary judgment, we will assume that the respondents

did breach various duties in the manner alleged. Proximate causation and

damages are elements of McCallum's claims of negligence, breach of fiduciary

duty, and consumer protection violations. Below, the respondents' motions for

summary judgment argued that McCallum suffered no damages because she

was paid in full for the amount secured. Thus, the issue on appeal is whether

their actions damaged McCallum.

       In opposition to summary judgment, McCallum argued that the deed of

trust was given to secure the total debt of $550,000—an argument she does not

make on appeal. She also made what we will refer to as the "allocation"

argument—that even if the deed of trust was given to secure only $320,000, the

check she received in that amount was or should have been allocated to the
No. 71137-7-1/6


unsecured portion of the total debt, leaving the deed of trust to secure the

remaining $230,000. She asserted that if she had known there was a deed of

trust securing the remaining $230,000, she could have simply foreclosed on it

before it was reconveyed.

       On appeal, McCallum repeats the allocation argument, but she initially

makes a new argument that we shall refer to as the "lost opportunity" argument.

She alleges that she lost the opportunity to protect herself against Reimer's

eventual default because the respondents did not make her aware of the deed of

trust. She contends that if she had known about the deed of trust transaction,

she would have immediately demanded and obtained full security from Reimer

for the remaining loan balance:

               Further, presented with Reimer's dishonesty, McCallum
       would not have relied on his promise to pay the remaining balance,
       but would have immediately demanded that Reimer execute a
       Deed of Trust securing the remaining loan balance as required by
       their agreement. (CP 119-20). McCallum could have also availed
       herself of other remedies, including immediately filing suit against
       Reimer and filing lis pendens against the development properties
       that Reimer had agreed would serve as security for McCallum's
       loan upon her demand.

Brief of Appellant at 19.

       Generally, failure to raise an issue before the trial court precludes a party

from raising it on appeal. RAP 2.5. McCallum acknowledges this rule but

asserts that, at a minimum, her "lost opportunity" argument on appeal is so

closely related to the "allocation" argument she raised below that it deserves to

be addressed on the merits. Reply Br. of Appellant at 8 n.5, citing Lunsford v.

Saberhaqen Holdings. Inc.. 139 Wn. App. 334, 338, 160 P.3d 1089 (2007) (an
No. 71137-7-1/7



appellate court may exercise its discretion to consider new arguments that are

"arguably related" to arguments made below), aff'd. 166 Wn.2d 264, 208 P.3d

1092(2009).

      The allocation argument asks the court to presume that McCallum was

secured for the balance of $230,000 until the respondents wrongfully eliminated

her security. The lost opportunity argument does not presume that McCallum

ever had security for the balance of $230,000; rather, it presumes that she could

have forced Reimer to give her security for the balance of $230,000 at the time of

the deed of trust transaction if she had known about it. Respondents might have

developed the record differently if McCallum had made the lost opportunity

argument below. The two arguments are not so closely related that respondents

should have seen it coming. We decline to consider the lost opportunity

argument for the first time on appeal. RAP 2.5.

      We now address the allocation argument. This is the claim that Reimer's

partial payment of $320,000 was or should have been allocated to the unsecured

portion of his debt. McCallum draws her argument from a general rule that

applies when a creditor is owed two different debts by the same debtor. If the

creditor receives a payment without direction as to how it should be applied, the

creditor may apply the payment to either debt. Ellinqsen v. W. Farmers Ass'n. 12

Wn. App. 423, 426, 529 P.2d 1163 (1974). A creditor who is secured as to one

debt but not the other will normally apply the payment to the unsecured debt first

in order to retain maximum security.
No. 71137-7-1/8


      McCallum declares, "When I received the check, I understood the

$320,000 was simply a payment against the aggregate debt owed. In fact, I

necessarily associated the funds only with unsecured debt because I did not yet

know any portion had been secured." According to McCallum, after she

discovered the documents reflecting there had been a deed of trust, on advice of

counsel she "more specifically applied the check first to any loan balance which

might be deemed unsecured." She concludes that had the respondents not

wrongfully reconveyed the deed of trust, she would have remained secured with

a first position deed of trust for the balance of $230,000. "The damages flowing

from respondents' wrongful release of McCallum's security interest are thus

easily calculable as the remaining amount of Reimer's loan that was still secured

by the Deed of Trust—$230,000." Br. of Appellant at 22.

      The respondents invoke an exception to the general rule known as the

"particular source" rule. When money received for payment of a debt is known to

the creditor to have been derived from a particular source, the creditor may not

unilaterally apply the proceeds to a debt unrelated to the source from which such

proceeds were generated. Ellinqsen. 12 Wn. App. at 426, citing Cummings v.

Erickson. 116 Wash. 347, 199 P. 736 (1921). The respondents argue that

Reimer's payment of $320,000 necessarily had to be applied to exonerate the

deed of trust because the deed of trust was the source of that payment. They

conclude that the balance of $230,000 remained unsecured, and therefore the

reconveyance of the deed of trust did not damage McCallum.




                                        8
No. 71137-7-1/9


      The general rule is typically applied in circumstances where there are two

distinct debts, and the creditor knows one is secured and the other is unsecured.

See, e.g.. Ellinqsen. 12 Wn. App. at 425-26. That is not what happened here.

McCallum did not request security for the loan and did not expect to be the

beneficiary of a deed of trust. When she received the payment of $320,000, she

did not know it was given to satisfy a deed of trust. She thought the total debt

was unsecured.


       The particular source exception to the general rule is applied when the

money with which the payment is made is known to the creditorto have been

derived from a particular source or fund. Cummings, 116 Wash, at 351. That is

not what happened here, either. At the time McCallum received the payment of

$320,000, she did not know it was in satisfaction of the deed of trust.

       Because McCallum did not know there was a deed of trust, she did not

allocate the payment of $320,000 at the time she received it. And Reimer did not

give her any direction as to how it should be allocated. Where neither the

creditor nor the debtor directs application of the payment to any particular debt,

the court will apply the payment according to its own notion of the intrinsic equity

and justice of the case. Oakes Logging. Inc. v. Green Crow. Inc.. 66 Wn. App.

598, 602, 832 P.2d 894 (1992). McCallum cites Oakes Logging and argues that

equity calls for allocating the $320,000 in a manner that provides her, as the

creditor, with the greatest security on the remaining balance.

       The Restatement of Contracts, an authority not cited by the parties, also

supports resort to equity when no allocation has been made, but it states that
No. 71137-7-1/10


consideration must also be given to the interests of third parties. "If neither the

debtor nor the creditor has exercised his power with respect to the application of

a payment as between two or more matured debts, the payment is applied to

debts to which the creditor could have applied it with just regard to the interests

of third persons, the debtor and the creditor." Restatement (Second) of

Contracts § 260 (1981) (emphasis added).

       In this atypical case, equity does not favor McCallum's interest over third

party interests. McCallum loaned money to Reimer without obtaining security.

At the time Reimer made her a beneficiary of a deed of trust, she was at risk of

losing the total debt of $550,000. As a result of becoming the beneficiary of a

deed of trust securing $320,000, her risk of loss was reduced to $230,000.

McCallum is in no worse position than if she had never been a beneficiary of the

deed of trust. In fact, it appears her position was improved by the deed of trust

transaction even though she was not informed of it. It would be inequitable to

shift the risk of loss from McCallum to the entities that facilitated the deed of trust

transaction.


       We conclude these are not appropriate circumstances for an equitable

allocation of the $320,000 payment to unsecured debt. Even assuming that the

respondents wrongfully failed to contact McCallum before releasing the security,

she was unsecured as to the balance of $230,000 and therefore she cannot

show that she was damaged by their conduct.

       The orders granting summary judgment are affirmed.




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No. 71137-7-1/11


                             O^cfcg^
WE CONCUR:




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