No. 81-132
I N THE SUPREME COURT OF THE STATE OF M N A A OTN
I N THE MATTER O THE ESTATE OF F DAVID LARRY HARBAUGH, D e c e a s e d .
Appeal from: D i s t r i c t Court of t h e Sixteenth J u d i c i a l D i s t r i c t , I n and f o r t h e County o f G a r f i e l d H o n o r a b l e A. B. M a r t i n , J u d g e p r e s i d i n g .
C o u n s e l o f Record:
For Appellant:
N i c k o l a s C . Murnion a r g u e d , J o r d a n , Montana
F o r Respondent:
B. M i l e s L a r s o n a r g u e d , S t a n f o r d , Montana
Submitted: O c t o b e r 23, 1 9 8 1
~ e c i d e d : J a n u a r y 1 4 , 1982
Filed: JMj 14 1983, Mr. J u s t i c e F r e d J. Weber d e l i v e r e d t h e Opinion of t h e Court.
The G a r f i e l d County Bank (Bank) of J o r d a n , Montana,
f i l e d a c r e d i t o r ' s c l a i m a g a i n s t t h e e s t a t e o f David L a r r y
Harbaugh ( L a r r y Harbaugh). The e s t a t e d i s a l l o w e d t h e c l a i m .
The Bank p e t i t i o n e d t h e D i s t r i c t C o u r t of t h e S i x t e e n t h
J u d i c i a l D i s t r i c t , G a r f i e l d County, Montana, f o r a l l o w a n c e
of t h e claim. The p e t i t i o n was d e n i e d and t h e Bank a p p e a l e d .
W e r e v e r s e t h e D i s t r i c t Court.
I n May, 1976, R o b e r t Baugh, A l t a Baugh, and L a r r y
Harbaugh s i g n e d a p r o m i s s o r y n o t e w i t h t h e G a r f i e l d County
Bank i n t h e amount o f $15,000. The n o t e was p a y a b l e i n
monthly i n s t a l l m e n t s of $198.23 u n t i l 1986, when t h e b a l a n c e
was due. The p r o m i s s o r y n o t e c o n t a i n e d t h e f o l l o w i n g l a n g u a g e :
"Upon any d e f a u l t i n t h e payment of i n t e r e s t o r p r i n c i p a l , o r i f t h e h o l d e r h e r e o f a t any t i m e i n good f a i t h b e l i e v e s t h a t t h e p r o s p e c t of due and p u n c t u a l payment of t h i s n o t e i s i m p a i r e d , t h i s n o t e s h a l l become immediately due and p a y a b l e a t t h e o p t i o n of t h e h o l d e r hereof."
T h e p r o c e e d s of t h e n o t e w e r e used by R o b e r t Baugh and
A l t a Baugh t o b u i l d a basement, w e l l , and sewer on t e n a c r e s
of l a n d h e l d i n j o i n t t e n a n c y by P a u l Harbaugh, C o r n e l i a
Harbaugh and L a r r y Harbaugh. P a u l Harbaugh and C o r n e l i a
Harbaugh a r e t h e p a r e n t s of L a r r y Harbaugh. The t e n a c r e s
of l a n d were l e a s e d t o R o b e r t Baugh p u r s u a n t t o a w r i t t e n
l e a s e f o r a t e r m of n i n e t y - n i n e y e a r s . The l e a s e c o n t a i n e d
a c l a u s e s p e c i f i c a l l y f o r b i d d i n g t h e s u b l e t t i n g of t h e
p r e m i s e s by R o b e r t Baugh w i t h o u t t h e p r i o r c o n s e n t of t h e
lessors. The l a n d on which t h e basement, w e l l and sewer a r e
l o c a t e d i s i n t h e m i d s t of t h e r a n c h owned by P a u l Harbaugh
and C o r n e l i a Harbaugh. A t t h e t i m e t h e l o a n w a s made, Rob c t Baugh and L a r r y
Harbaugh i n t e n d e d t o become p a r t n e r s i n t h e r a n c h i n g b u s i n e s s on t h e Harbaugh r a n c h . R o b e r t Baugh i n i t i a l l y a p p r o a c h e d
t h e Harbaughs a b o u t o b t a i n i n g t h e l o a n a n d w a s d i r e c t e d t o
g o t o t h e G a r f i e l d County Bank. The G a r f i e l d County Bank
i n s i s t e d t h a t L a r r y Harbaugh c o s i g n t h e p r o m i s s o r y n o t e
s i n c e R o b e r t Baugh was u n a b l e t o g i v e any s e c u r i t y f o r t h e
note. A f t e r t h e b a s e m e n t , w e l l and s e w e r w e r e b u i l t , R o b e r t
Baugh and L a r r y Harbaugh d e c i d e d n o t t o become p a r t n e r s and
R o b e r t Baugh moved t o J o r d a n .
L a r r y Harbaugh d i e d on November 5, 1 9 7 9 , a n d t h e p r o b a t e
o f t h e e s t a t e was opened on November 26, 1979. On December
6 , 1979, t h e f i r s t n o t i c e t o c r e d i t o r s was p u b l i s h e d i n t h e
Jordan Tribune. The G a r f i e l d County Bank f i l e d a c l a i m
a g a i n s t t h e e s t a t e o f L a r r y Harbaugh on F e b r u a r y 1 3 , 1980.
The c l a i m was b a s e d upon t h e p r o m i s s o r y n o t e and w a s i n t h e
amount of $11,054.78. The c r e d i t o r ' s c l a i m was d i s a l l o w e d
on J u n e 23, 1980, a n d a p e t i t i o n f o r a l l o w a n c e o f t h e c l a i m
was f i l e d by t h e G a r f i e l d County Bank on J u l y 25, 1980.
H e a r i n g on t h e p e t i t i o n was had on J a n u a r y 6, 1981. The
D i s t r i c t Court refused t o g r a n t t h e Bank's p e t i t i o n f o r
a l l o w a n c e of the c l a i m , and t h i s a p p e a l f o l l o w e d .
The G a r f i e l d County Bank h a s r a i s e d two i s s u e s i n i t s
appeal:
(1) Did t h e d e a t h o f L a r r y Harbaugh e s t a b l i s h a b a s i s f o r invoking t h e a c c e l e r a t i o n c l a u s e of t h e promissory note?
(2) Did t h e D i s t r i c t C o u r t e r r by c o m p l e t e l y e x o n e r a t i n g
t h e e s t a t e of L a r r y Harbaugh from l i a b i l i t y on t h e n o t e ?
W e find t h a t the f i r s t issue is not properly before
t h i s Court. The Bank a r g u e d b o t h a t t h e h e a r i n g below a n d
o n a p p e a l t h a t s e c t i o n 30-1-208, MCA, and t h e a c c e l e r a t i o n
c l a u s e of t h e n o t e g a v e t h e Bank t h e r i g h t t o d e c l a r e t h e n o t e due and p a y a b l e i f t h e Bank had a good f a i t h b e l i e f
t h a t t h e d e a t h of L a r r y Harbaugh had i m p a i r e d t h e p r o s p e c t
o f payment of t h e n o t e . However, n e i t h e r t h e c l a i m a g a i n s t
t h e e s t a t e n o r t h e p e t i t i o n f o r a l l o w a n c e of c l a i m r e q u e s t e d
more t h a n t h e e s t a b l i s h m e n t of t h e e x i s t e n c e of t h e d e b t
c r e a t e d by t h e s i g n i n g of t h e p r o m i s s o r y n o t e . The Bank d i d
n o t a s k t h a t t h e e n t i r e b a l a n c e be d e c l a r e d due and owing.
T h e r e f o r e , t h e f i r s t i s s u e r a i s e d by t h e Bank i s n o t p r o p e r l y
b e f o r e u s and w e d e c l i n e t o r u l e upon it.
A s t o t h e second i s s u e , w e f i n d t h a t t h e D i s t r i c t C o u r t
e r r e d by i s s u i n g i t s o r d e r which, i n e f f e c t , c o m p l e t e l y
e x o n e r a t e d t h e Harbaugh e s t a t e from any l i a b i l i t y under t h e
note. S i n c e Harbaugh s i g n e d t h e i n s t r u m e n t f o r t h e p u r p o s e
of l e n d i n g h i s name t o a n o t h e r p a r t y t o t h e i n s t r u m e n t , h e
was a n accommodation maker. S e c t i o n 30-3-415(1), MCA.
I n Montana a n accommodation maker i s p r i m a r i l y l i a b l e
on t h e i n s t r u m e n t which h e s i g n s .
" S u b s e c t i o n (1) r e c o g n i z e s t h a t a n accommoda- t i o n p a r t y i s always a s u r e t y (which i n c l u d e s a g u a r a n t o r ) , and it i s h i s o n l y d i s t i n g u i s h - i n g f e a t u r e .
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No. 81-132
I N THE SUPREME COURT OF THE STATE OF M N A A OTN
I N THE MATTER O THE ESTATE OF F DAVID LARRY HARBAUGH, D e c e a s e d .
Appeal from: D i s t r i c t Court of t h e Sixteenth J u d i c i a l D i s t r i c t , I n and f o r t h e County o f G a r f i e l d H o n o r a b l e A. B. M a r t i n , J u d g e p r e s i d i n g .
C o u n s e l o f Record:
For Appellant:
N i c k o l a s C . Murnion a r g u e d , J o r d a n , Montana
F o r Respondent:
B. M i l e s L a r s o n a r g u e d , S t a n f o r d , Montana
Submitted: O c t o b e r 23, 1 9 8 1
~ e c i d e d : J a n u a r y 1 4 , 1982
Filed: JMj 14 1983, Mr. J u s t i c e F r e d J. Weber d e l i v e r e d t h e Opinion of t h e Court.
The G a r f i e l d County Bank (Bank) of J o r d a n , Montana,
f i l e d a c r e d i t o r ' s c l a i m a g a i n s t t h e e s t a t e o f David L a r r y
Harbaugh ( L a r r y Harbaugh). The e s t a t e d i s a l l o w e d t h e c l a i m .
The Bank p e t i t i o n e d t h e D i s t r i c t C o u r t of t h e S i x t e e n t h
J u d i c i a l D i s t r i c t , G a r f i e l d County, Montana, f o r a l l o w a n c e
of t h e claim. The p e t i t i o n was d e n i e d and t h e Bank a p p e a l e d .
W e r e v e r s e t h e D i s t r i c t Court.
I n May, 1976, R o b e r t Baugh, A l t a Baugh, and L a r r y
Harbaugh s i g n e d a p r o m i s s o r y n o t e w i t h t h e G a r f i e l d County
Bank i n t h e amount o f $15,000. The n o t e was p a y a b l e i n
monthly i n s t a l l m e n t s of $198.23 u n t i l 1986, when t h e b a l a n c e
was due. The p r o m i s s o r y n o t e c o n t a i n e d t h e f o l l o w i n g l a n g u a g e :
"Upon any d e f a u l t i n t h e payment of i n t e r e s t o r p r i n c i p a l , o r i f t h e h o l d e r h e r e o f a t any t i m e i n good f a i t h b e l i e v e s t h a t t h e p r o s p e c t of due and p u n c t u a l payment of t h i s n o t e i s i m p a i r e d , t h i s n o t e s h a l l become immediately due and p a y a b l e a t t h e o p t i o n of t h e h o l d e r hereof."
T h e p r o c e e d s of t h e n o t e w e r e used by R o b e r t Baugh and
A l t a Baugh t o b u i l d a basement, w e l l , and sewer on t e n a c r e s
of l a n d h e l d i n j o i n t t e n a n c y by P a u l Harbaugh, C o r n e l i a
Harbaugh and L a r r y Harbaugh. P a u l Harbaugh and C o r n e l i a
Harbaugh a r e t h e p a r e n t s of L a r r y Harbaugh. The t e n a c r e s
of l a n d were l e a s e d t o R o b e r t Baugh p u r s u a n t t o a w r i t t e n
l e a s e f o r a t e r m of n i n e t y - n i n e y e a r s . The l e a s e c o n t a i n e d
a c l a u s e s p e c i f i c a l l y f o r b i d d i n g t h e s u b l e t t i n g of t h e
p r e m i s e s by R o b e r t Baugh w i t h o u t t h e p r i o r c o n s e n t of t h e
lessors. The l a n d on which t h e basement, w e l l and sewer a r e
l o c a t e d i s i n t h e m i d s t of t h e r a n c h owned by P a u l Harbaugh
and C o r n e l i a Harbaugh. A t t h e t i m e t h e l o a n w a s made, Rob c t Baugh and L a r r y
Harbaugh i n t e n d e d t o become p a r t n e r s i n t h e r a n c h i n g b u s i n e s s on t h e Harbaugh r a n c h . R o b e r t Baugh i n i t i a l l y a p p r o a c h e d
t h e Harbaughs a b o u t o b t a i n i n g t h e l o a n a n d w a s d i r e c t e d t o
g o t o t h e G a r f i e l d County Bank. The G a r f i e l d County Bank
i n s i s t e d t h a t L a r r y Harbaugh c o s i g n t h e p r o m i s s o r y n o t e
s i n c e R o b e r t Baugh was u n a b l e t o g i v e any s e c u r i t y f o r t h e
note. A f t e r t h e b a s e m e n t , w e l l and s e w e r w e r e b u i l t , R o b e r t
Baugh and L a r r y Harbaugh d e c i d e d n o t t o become p a r t n e r s and
R o b e r t Baugh moved t o J o r d a n .
L a r r y Harbaugh d i e d on November 5, 1 9 7 9 , a n d t h e p r o b a t e
o f t h e e s t a t e was opened on November 26, 1979. On December
6 , 1979, t h e f i r s t n o t i c e t o c r e d i t o r s was p u b l i s h e d i n t h e
Jordan Tribune. The G a r f i e l d County Bank f i l e d a c l a i m
a g a i n s t t h e e s t a t e o f L a r r y Harbaugh on F e b r u a r y 1 3 , 1980.
The c l a i m was b a s e d upon t h e p r o m i s s o r y n o t e and w a s i n t h e
amount of $11,054.78. The c r e d i t o r ' s c l a i m was d i s a l l o w e d
on J u n e 23, 1980, a n d a p e t i t i o n f o r a l l o w a n c e o f t h e c l a i m
was f i l e d by t h e G a r f i e l d County Bank on J u l y 25, 1980.
H e a r i n g on t h e p e t i t i o n was had on J a n u a r y 6, 1981. The
D i s t r i c t Court refused t o g r a n t t h e Bank's p e t i t i o n f o r
a l l o w a n c e of the c l a i m , and t h i s a p p e a l f o l l o w e d .
The G a r f i e l d County Bank h a s r a i s e d two i s s u e s i n i t s
appeal:
(1) Did t h e d e a t h o f L a r r y Harbaugh e s t a b l i s h a b a s i s f o r invoking t h e a c c e l e r a t i o n c l a u s e of t h e promissory note?
(2) Did t h e D i s t r i c t C o u r t e r r by c o m p l e t e l y e x o n e r a t i n g
t h e e s t a t e of L a r r y Harbaugh from l i a b i l i t y on t h e n o t e ?
W e find t h a t the f i r s t issue is not properly before
t h i s Court. The Bank a r g u e d b o t h a t t h e h e a r i n g below a n d
o n a p p e a l t h a t s e c t i o n 30-1-208, MCA, and t h e a c c e l e r a t i o n
c l a u s e of t h e n o t e g a v e t h e Bank t h e r i g h t t o d e c l a r e t h e n o t e due and p a y a b l e i f t h e Bank had a good f a i t h b e l i e f
t h a t t h e d e a t h of L a r r y Harbaugh had i m p a i r e d t h e p r o s p e c t
o f payment of t h e n o t e . However, n e i t h e r t h e c l a i m a g a i n s t
t h e e s t a t e n o r t h e p e t i t i o n f o r a l l o w a n c e of c l a i m r e q u e s t e d
more t h a n t h e e s t a b l i s h m e n t of t h e e x i s t e n c e of t h e d e b t
c r e a t e d by t h e s i g n i n g of t h e p r o m i s s o r y n o t e . The Bank d i d
n o t a s k t h a t t h e e n t i r e b a l a n c e be d e c l a r e d due and owing.
T h e r e f o r e , t h e f i r s t i s s u e r a i s e d by t h e Bank i s n o t p r o p e r l y
b e f o r e u s and w e d e c l i n e t o r u l e upon it.
A s t o t h e second i s s u e , w e f i n d t h a t t h e D i s t r i c t C o u r t
e r r e d by i s s u i n g i t s o r d e r which, i n e f f e c t , c o m p l e t e l y
e x o n e r a t e d t h e Harbaugh e s t a t e from any l i a b i l i t y under t h e
note. S i n c e Harbaugh s i g n e d t h e i n s t r u m e n t f o r t h e p u r p o s e
of l e n d i n g h i s name t o a n o t h e r p a r t y t o t h e i n s t r u m e n t , h e
was a n accommodation maker. S e c t i o n 30-3-415(1), MCA.
I n Montana a n accommodation maker i s p r i m a r i l y l i a b l e
on t h e i n s t r u m e n t which h e s i g n s .
" S u b s e c t i o n (1) r e c o g n i z e s t h a t a n accommoda- t i o n p a r t y i s always a s u r e t y (which i n c l u d e s a g u a r a n t o r ) , and it i s h i s o n l y d i s t i n g u i s h - i n g f e a t u r e . He d i f f e r s from o t h e r s u r e t i e s o n l y i n t h a t h i s l i a b i l i t y i s on t h e i n s t r u m e n t and h e i s a s u r e t y f o r a n o t h e r p a r t y t o i t . H i s o b l i g a t i o n i s t h e r e f o r e d e t e r m i n e d by t h e - c a p a c i t y i n which he s i g n s . An accommodation maker o r a c c e p t o r i s bound - -e i n s t r u m e n t on t h w i t h o u t a n y r e s o r t 7 0 -s p r i n c i p a l , w h i l e a n - hi accommodation i n d o r s e r may b e l i a b l e o n l y a f t e r p r e s e n t m e n t , n o t i c e of d i s h o n o r and p r o t e s t . " O f f i c i a l Comment, s e c t i o n 30-3-415, MCA, (Anno- t a t i o n s ) (emphasis s u p p l i e d ) .
A accommodation maker was a l s o p r i m a r i l y l i a b l e on t h e n
i n s t r u m e n t p r i o r t o t h e a d o p t i o n of t h e Uniform Commercial
Code. A s t h i s C o u r t s a i d i n M e r c h a n t s ' Nat. Bank v. Smith
( 1 9 2 1 ) , 59 Mont. 280, 196 P . 523:
". . . t h e f a c t t h a t L e e signed t h e n o t e with- o u t r e c e i v i n g any p a r t of t h e c o n s i d e r a t i o n , and f o r t h e purpose o n l y of l e n d i n g h i s name t o Smith, d o e s n o t a l t e r h i s s i t u a t i o n . H e i s l i a b l e n o t w i t h s t a n d i n g t h e bank, a t t h e t i m e it t o o k t h e n o t e , knew him t o be o n l y a n accommodation p a r t y . . . I n o t h e r words, t h e f a c t t h a t he i s a n accommodation maker g i v e s r i s e t o a d u t y on h i s p a r t t o t h e h o l d e r f o r v a l u e , no g r e a t e r , o r l e s s o r d i f f e r e n t , t h a n t h a t imposed upon a maker who r e c e i v e d v a l u e . " 59 Mont. a t 292, 196 P . a t 525.
The d e a t h of L a r r y Harbaugh d i d n o t e x t i n g u i s h h i s
obligation. N e i t h e r t h e U.C.C., n o r t h e s t a t u t e s on g u a r a n t y
and s u r e t y s h i p , p r o v i d e t h a t d e a t h r e s u l t s i n t h e d i s c h a r g e
o r e x o n e r a t i o n of one i n L a r r y Harbaugh's p o s i t i o n . See
s e c t i o n s 30-3-601, MCA; T i t l e 28, c h a p t e r 11, p a r t 2 , MCA;
and T i t l e 28, c h a p t e r 11, p a r t 4 , MCA. I n d e e d , t h e common
law r u l e i s t h a t d e a t h d o e s n o t e x o n e r a t e a s u r e t y . U.S. ex
r e l . Wilhelm v. Chain ( 1 9 3 7 ) , 300 U.S. 31, 57 S . C t . 394, 81
The D i s t r i c t C o u r t s h o u l d have found t h a t t h e e s t a t e
owed t h e b a l a n c e under t h e t e r m s of t h e p r o m i s s o r y n o t e ,
t h a t o b l i g a t i o n b e i n g a s a n accommodation maker. I n accordance
w i t h s e c t i o n 72-3-805(2), t h e c o u r t s h o u l d have a l l o w e d t h e
claim i n f u l l . W e n o t e t h a t such a l l o w a n c e d o e s n o t n e c e s s a r i l y
r e q u i r e payment i n f u l l o r i n p a r t by t h e e s t a t e .
The payment of c l a i m s i s p r o v i d e d f o r i n s e c t i o n s 72-3-
808, 72-3-814 and 72-3-815, MCA. T h e r e a r e a number of
a l t e r n a t i v e s available t o t h e personal representative with
r e g a r d t o payment. A s a n example, t h e p e r s o n a l r e p r e s e n t a t i v e
may s e e k t o compromise t h e o b l i g a t i o n of t h e e s t a t e . The
p e r s o n a l r e p r e s e n t a t i v e , o f c o u r s e , may pay t h e same i n
cash. I n t h i s i n s t a n c e , i t a p p e a r s t h a t s e c t i o n 72-3-814(2)
is particularly appropriate. Under t h a t s e c t i o n , t h e p e r s o n a l
r e p r e s e n t a t i v e could p e t i t i o n t h e c o u r t i n a s p e c i a l proceeding
f o r t h a t p u r p o s e t o a r r a n g e f o r p o s s i b l e payment on t h e
happening of t h e c o n t i n g e n c y t h a t t h e primary maker d e f a u l t s i n payment, w i t h s u c h payment t o b e s e c u r e d by a m o r t g a g e o r
o t h e r s e c u r i t y on e s t a t e p r o p e r t y . Such a n a r r a n g e m e n t
would a l l o w d i s t r i b u t i o n of a s s e t s w i t h o u t a r e q u i r e d a d v a n c e
payment o f t h e n o t e , and y e t would g i v e t h e Bank t h e s e c u r i t y
which i s r e a s o n a b l y n e c e s s a r y i f t h e r e i s t o b e a postponement
i n t i m e o f payment. Such a p r o c e d u r e would a l l o w t h e makers
R o b e r t and A l t a Baugh t o c o n t i n u e t o make t h e payments f o r
which t h e y a r e r e s p o n s i b l e .
The o r d e r o f t h e D i s t r i c t C o u r t d i s a l l o w i n g t h e c l a i m
is reversed. The D i s t r i c t C o u r t i s d i r e c t e d t o e n t e r i t s
order allowing t h e claim, s u b j e c t t o t h e f u r t h e r determination
o f t h e manner o f payment i n a c c o r d a n c e w i t h t h e p r o b a t e
procedures.
W e Concur:
Chief J u s t i c e
I concur i n the r e s u l t .