In re Pugh
| Decision Date | 03 September 1993 |
| Docket Number | Bankruptcy No. 92-06046.,BAP No. WW-93-1032-AsRB |
| Citation | 157 BR 898 |
| Parties | In re Ivan F. PUGH and Ruth M. Pugh, Debtor. Helen SPENCER, Appellant, v. Ivan F. PUGH and Ruth M. Pugh, Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Michael J. Cranston, Seattle, WA, for Helen Spencer.
Barry C. Kombol, Black Diamond, WA, for Ivan & Ruth Pugh.
Before ASHLAND, RUSSELL and BOWIE,1 Bankruptcy Judges.
A real estate contract vendor filed a claim in the debtor's Chapter 13 bankruptcy proceeding. The debtor objected to the claim maintaining that the vendor overestimated the remaining balance on the contract. The bankruptcy court found that the contract balance was $12,826 evidenced by written confirmation from the vendor. We reverse and remand.
Appellant Helen Spencer and her late husband, Richard, sold by real estate contract a parcel of property to the debtors Ivan and Ruth Pugh. The contract recited the $25,000 purchase price, acknowledged the $5,000 down payment made by Mrs. Pugh, and called for monthly payments of $250 on the $20,000 balance commencing on June 6, 1986. The interest rate was 8.5% per annum with the interest being deducted from each installment. The remainder of each payment was applied to reduce the principal.
Richard Spencer maintained the monthly handwritten log of the payments made by the Pughs. The log included: (1) the date of payment; (2) the amount paid; (3) the sum applied to interest; (4) the sum applied to principal; (5) the principal balance then due; and (6) the date the interest was paid. Mr. Spencer calculated the contract interest by multiplying the principal outstanding by 30 days, then multiplying by the interest rate (.085), then dividing by 360. This sum constituted the interest which had accrued in the interval since the previous contract payment. The remaining portion of the monthly payment was applied toward principal.
Following the September 1991 payment, the Pughs requested and obtained a written statement of the contract balance. Mr. Spencer indicated that the contract balance was $12,826. Mr. Spencer subsequently died in October 1991 and Mrs. Spencer took over the calculations on the contract implementing the same accounting procedures used by her husband.
The Pughs subsequently filed a Chapter 13 bankruptcy petition in July 1992. Helen Spencer filed a claim in the Pugh's bankruptcy proceeding claiming that the contract with the Pughs: (1) had a balance of $12,608 as of September 1992; (2) was $2,753 in arrears; and (3) that the debtors owed $2,250 in legal fees and $265 in costs. The Pughs objected to Mrs. Spencer's claim maintaining that the balance as of September 1991 was $12,826. Mrs. Spencer explained the discrepancy stating that she and her husband erroneously calculated the interest deduction and remaining balance.
The bankruptcy court found that the real estate contract balance was in accordance with the $12,826 figure reflected in the September 21, 1991 letter from Mr. Spencer. In addition, the bankruptcy court ordered the debtor to make double payments under the plan plus an additional $500 payment attributable to interest until the contract was brought current. Finally, the bankruptcy court reduced Mrs. Spencer's claim for attorney fees and costs from $2,490 to $750.
Mrs. Spencer requested findings of fact and conclusions of law from the bankruptcy court, but the court signed the debtors' order without findings and conclusions. This appeal followed.
Whether the bankruptcy court correctly valued the claim of a secured creditor.
Whether the bankruptcy court abused its discretion reducing a secured creditor's claim for attorney fees and costs of approximately $2,490 to $750.
We review the bankruptcy court's findings of fact with respect to claim valuation for clear error. In re Midway Partners, 995 F.2d 490, 493 (4th Cir.1993); Federal Rule of Bankruptcy Procedure 8013. We review any related legal determinations with respect to the valuation de novo. Midway, 995 F.2d at 493. A bankruptcy court's award of attorney's fees will not be disturbed on appeal absent an abuse of discretion or an erroneous application of the law. In re Riverside-Linden Inv. Co., 945 F.2d 320, 322 (9th Cir.1991); In re Travel Headquarters, Inc., 140 B.R. 260, 261 (9th Cir. BAP 1992).
Section 1305 of the Bankruptcy Code states that a claim filed in a Chapter 13 case "shall be allowed or disallowed under § 502 as are all other claims. . . ." H.R.Rep. No. 595, 95th Cong., 1st Sess. 427-428 reprinted in 1978 U.S.C.C.A.N. 5787, 5963, 6383; 11 U.S.C. § 1305. Section 502(a) states that "a claim of interest, proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest . . . objects." 11 U.S.C. § 502(a). If a party in interest objects to a claim, the bankruptcy court shall hold a hearing in order to determine the amount of the claim. 11 U.S.C. § 502(b).
A proof of claim executed and filed constitutes prima facie evidence of the validity and amount of the claim. Federal Rule of Bankruptcy Procedure 3001(f); In re Holm, 931 F.2d 620, 623 (9th Cir.1991) (quoting 3 Lawrence P. King, Collier on Bankruptcy § 502.02, at 502-22 (15th ed. 1991)). After an objection is raised, the objector bears the burden of going forward to produce evidence sufficient to negate the prima facie validity of the filed claim. In re Allegheny Intern., Inc., 954 F.2d 167, 173 (3d Cir.1992). If the objector produces evidence sufficient to negate the validity of the claim, the ultimate burden of persuasion remains on the claimant to demonstrate by a preponderance of the evidence that the claim deserves to share in the distribution of the debtor's assets. Allegheny, 954 F.2d at 174; Holm, 931 F.2d at 623; 3 Lawrence P. King, Collier on Bankruptcy § 502.02, at 502-22 (15th ed. 1993).
The appellant Mrs. Spencer filed a proof of claim stating that the real estate contract with the appellee Pughs: (1) had a balance of $12,608 as of September 1992; (2) was $2,753 in arrears; and (3) that the debtors owed $2,490 in fees and costs. The Pughs objected to Mrs. Spencer's claim calculation offering a letter written by Mr. Spencer in September 1991. The letter stated that the outstanding balance was $12,826.
The bankruptcy court held a hearing and sustained the Pughs' objection valuing Mrs. Spencer's claim at $12,826 plus an additional $500 attributable to past interest. Although the bankruptcy court did not enter specific findings, the transcript from the hearing indicates that the court based its decision upon the theory of "account stated." The bankruptcy court stated that:
it seems to me that the account is as stated by Mr. Spencer, but it also seems to me that, given the situation, that things need to be brought to a level where the interest, as he calculates it, and the principal payments are all brought current. And I don\'t know how to figure that out.
(E.R. at 85-11/17). We do not agree with the bankruptcy court's determination that the September 1991 letter from Mr. Spencer established an "account stated."
The validity of a creditor's claim is determined by rules of state law. Grogan v. Garner, 498 U.S. 279, 283, 111 S.Ct. 654, 657, 112 L.Ed.2d 755 (1991); In re Johnson, 756 F.2d 738, 741 (9th Cir.) cert. den., 474 U.S. 828, 106 S.Ct. 88, 88 L.Ed.2d 72 (1985). The real estate contract in this case deals with real property located in the State of Washington. Accordingly, Washington law is applied to determine Mrs. Spencer's claim.
"An account stated exists when the parties mutually agree to settle their account by payment of a stated sum." Housing Auth. v. Northeast Lake Washington Sewer and Water Dist., 56 Wash.App. 589, 596, 784 P.2d 1284, 1288 (Ct.App.), review den., 115 Wash.2d 1004, 795 P.2d 1156 (1990). "A statement of account is prima facie evidence only, and a unilateral mistake of fact may be used to impeach a statement of account." Housing Auth., 56 Wash.App. at 596, 784 P.2d at 1288 (citing 1A C.J.S. Account Stated §§ 14, 34 (1985)). A party may not impeach the evidence of an account stated if the elements of an estoppel are present. 1 Am.Jur.2d, Accounts and Accounting § 35 (1962 & 1993 Supp.). We have not found any evidence in the record that indicates Mrs. Spencer is estopped from impeaching the prima facie evidence found in the letter from Mr. Spencer.
Mrs. Spencer maintains that the mistaken calculation of the interest due impeaches the account balance reflected in the September 1991 letter. Prior to his death in October 1991, Mr. Spencer adhered to a specific procedure for calculating all the interest due on the diminishing principal. He calculated the interest accrued by multiplying the principal outstanding by 30 days, then multiplying by the interest rate (.085), then dividing by 360. The resulting sum was the interest which had accrued in the interval since the previous contract payment. The remaining portion of the monthly payment was applied toward principal.
This procedure accurately accounted for the interest accumulating as long as the payments were made on the 6th day of each month. However, if the payments were made a few days early or a few days late, the interest computation changed. The interest provision in the real estate contract states that the:
purchaser further agrees to pay interest on the diminishing balance of said purchase price at the rate of — 8½ — per cent per annum from the 6th day of October, 1986, which interest shall be deducted from each installment payment and the balance of each payment applied in reduction of principal.
(E.R. at 27). The plain language of this provision states that interest shall be paid on the diminishing balance. It follows that if a payment is made early or late the time period...
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