Belgrade State Bank v. Elder

• Decision Date: 08 March 1971
• Docket Number: No. 11858,11858
• Citation: 157 Mont. 1,8 U.C.C. Rep. 1359,482 P.2d 135,28 St.Rep. 229
• Court: Montana Supreme Court
• Parties: , 8 UCC Rep.Serv. 1359 BELGRADE STATE BANK, a Banking Corporation, Plaintiff and Appellant, v. George ELDER, d/b/a Elder Logging Co., and d/b/a Elder Bros. Logging Company, 3-D Lumber Company, Skagit Equipment Company, and Western Construction Equipment Company, a Division of Harold M. Doolen & Sons, Inc., a Montana Corporation, Defendants and Respondents.

Page 135

482 P.2d 135

157 Mont. 1, 8 UCC Rep.Serv. 1359

BELGRADE STATE BANK, a Banking Corporation, Plaintiff and Appellant, v. George ELDER, d/b/a Elder Logging Co., and d/b/a Elder Bros.

Logging Company, 3-D Lumber Company, Skagit Equipment

Company, and Western Construction Equipment Company, a

Division of Harold M. Doolen & Sons, Inc., a Montana

Corporation, Defendants and Respondents.

No. 11858.

Supreme Court of Montana.

Submitted Jan. 14, 1971.

Decided March 8, 1971.

Thomas E. Towe and Gerald Neely (argued), Billings, for plaintiff-appellant.

Crowley, Kilbourne, Haughey, Hanson & Gallagher, Billings, Corette, Smith & Dean, Kendrick Smith (argued), Butte, Douglas R. Drysdale (argued) Drysdale & McLean, Berg, O'Connell, Angel & Andriolo, Charles F. Angel (argued), Bozeman, for defendants-respondents.

CASTLES, Justice.

This is an appeal from a summary judgment entered by the district court in Gallatin County. A motion to dismiss the appeal as well as the merits of the appeal were argued the same day.

Belgrade State Bank, appellant here, loaned money to George Elder. Elder was a logger. Elder signed several promissory notes in 1964 and 1965. The notes were secured by a security agreement entitled 'Security Agreement (Farm Products and Equipment)' covering timber and logs, and listing equipment as a crawler-type tractor, a bulldozer, a truck with a mounted crane and a yarder. In November 1967, the bank took possession on the bulldozer.

The security agreement was filed of record in Gallatin County; but apparently not in the secretary of state's office.

Subsequently, Elder traded the crane to defendant Western Construction Equipment Company for a heel boom loader. Also, Elder traded the yarder and the crawler-type tractor to defendant Skagit Equipment Company for a Skagit yarder.

Elder encountered financial difficulties and failed to make payments on the heel boom loader and the Skagit yarder. They were repossessed and sold to 3-D Lumber Company.

In December 1967, Elder filed a petition in bankruptcy. Plaintiff-appellant here the Belgrade State Bank, filed in the bankruptcy matter 'Specification of Objections to Discharge' as follows:

'1) On or about March 6, 1967, the bankrupt, while engaged in business as a sole proprietor obtained from the Belgrade State Bank an extension of credit on six promissory notes all due on demand except one due on December 21, 1964, and payable to the said Belgrade State Bank by making a materially false statement in writing respecting his financial condition, which said materially false statement was that his total liabilities were $111,466.00, (One Hundred Eleven Thousand Four Hundred Sixty-Six Dollars) whereas in truth and in fact the same were $248,361.95 (Two Hundred Forty-eight Thousand Three Hundred Sixty-one and 95/100 Dollars).

'2) On or about March 6, 1967, the bankrupt, while engaged in business as a sole proprietor obtained from the above Belgrade State Bank an extension of credit on six notes all due on demand except one due on December 21, 1964, and payable to the Belgrade State Bank by making a materially false statement in writing respecting his financial condition, which said materially false statement was that his total machinery, equipment and fixtures had a value of $113,300 (One Hundered Thirteen Thousand Three Hundred Dollars), whereas in truth and in fact, the same were less than $60,000 (Sixty Thousand Dollars).

'3) On or About August 7, 1964, the bankrupt, while engaged in business as a sole proprietor obtained money, in the form of a loan from the Belgrade State Bank on credit by making a materially false statement in writing respecting his financial condition, which said materially false statement was that he had Seven Thousand Dollars ($7,000) worth of logs cut ready for hauling, whereas in truth and in fact, he had no such logs cut ready for hauling.

'4) Some time after March 7, 1967, and subsequent to the first day of the twelve months immediately preceding the filing of the Petition and bankruptcy herein, the bankrupt transferred certain of his property consisting of a Little Giant Heel Boom Loader and a Skagit Yarder to 3-D Lumber Company or to other persons with intent to defraud, hinder, or delay his creditors.'

The referee in bankruptcy held a hearing and made findings as reflected hereinafter:

'I. That on or about March 6, 1967, the bankrupt, at the request of Jack W. Swainson, Executive Vice President of Belgrade State Bank, at Belgrade, Montana, said Swainson then and there acting as agent and for and on behalf of said Belgrade State Bank, answered questions posed him, the said bankrupt, by the said Swainson; Swainson, as the bankrupt answered the questions, placed his answers upon the form entitled 'Personal Statement', that all answers given by the bankrupt to the said Swainson were given to the best of the bankrupt's knowledge, and were not materially false in any respect. That the bankrupt, insofar as he knew, truthfully listed his total liabilities, total assets, and total value of machinery, equipment and fixtures; That at said time, March 6, 1967, the Belgrade State Bank was the holder of six promissory notes executed by the bankrupt, five of these notes being demand, and the sixth having been due on December 21, 1964. That Belgrade State Bank made no binding extension of credit, or any extension of credit, on any representation made by the bankrupt, and bankrupt received nothing of value as a result of any statement, written or oral, made on or about March, 1967, to the said Belgrade State Bank; That as a result of said conversation, bankrupt did assign Seventy-five Cents ($.75) per thousand board feet on all timber cut by him, to the said Belgrade State Bank, which said moneys so assigned were received by the said Belgrade State Bank.

'II. That the bankrupt never made any material false statement, or any false statement, either oral or written, respecting his financial condition to the said Belgrade State Bank, said Belgrade State Bank never made any extensions of credit, nor parted with anything of value, upon any representation, either oral or written, made by the bankrupt, in connection with the said 'Personal Statement'.

'III. That on or about August 7, 1964, the bankrupt, while engaged in business as a sole proprietor, obtained money, in the form of a loan to the Belgrade State Bank on credit by making a statement in writing respecting his financial condition, which said statement was that he had Seven Thousand Dollars ($7,000.00) worth of logs cut, and ready for hauling, and that at said time the said bankrupt had in excess of Ten Thousand Dollars ($10,000.00) worth of logs cut and ready for hauling, and that the said statement so made was in fact true.

'IV. That the bankrupt, subsequent to the first day of the twelve months immediately preceding the filing of his Petition in Bankruptcy herein, made no transfer of property described as a Little Giant Heel Boom Loader and Skagit Yarder. That the bankrupt held said property hereinbefore described under a Lease Option Agreement with 3-D Lumber Company, and never held a legal title thereto, and that said property was repossessed by the 3-D Lumber Company due to the default of the bankrupt in making Lease payments thereon. That the bankrupt never made any transfer of said property, and particularly and transfer of said property with any intent to defraud, hinder, or delay his creditors.'

The bank did not appeal.

Subsequently the bank filed in Gallatin County the complaint that is the subject of this appeal. 3-D Lumber Company, a defendant, has been dismissed as a defendant. Elder is no longer in the case. Skagit is still in and has filed motions to dismiss and responded to the merits.

The complaint alleged Elder was obligated to plaintiff bank on certain secured notes, said obligations being later scheduled by Elder in his petition for bankruptcy. Plaintiff alleged that, notwithstanding Elder's discharge in bankruptcy, he was still obligated to plaintiff on the notes, because the obligations were not dischargeable by virtue of their exception from discharge under section 17(a)(2) of the United States Bankruptcy Act, U.S.C.A. Title 11, § 35, which excepts from discharge those liabilities founded upon a materially false statement in writing respecting one's financial condition.

By way of answers with attached exhibits of the bankruptcy proceedings, the previously quoted findings of fact and conclusions of law were put...