Case Title: ESTATE OF HARBAUGH

Citation: 

Docket Number: 

State: montana

Court: Montana Supreme Court

Date: 1982-01-14T00:00:00Z

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N o . 81-132 I N T H E SUPREME C O U R T O F THE STATE O F M O N T A N A 1981 I N T H E M A T T E R O F T H E ESTATE O F DAVID L A R R Y HARBAUGH, Deceased. Appeal from: D i s t r i c t Court 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 , I n and f o r t h e County of G a r f i e l d Honorable A. B. Martin, Judge p r e s i d i n g . Counsel of Record: For Appellant: Nickolas C. Murnion argued, Jordan, Montana For Respondent: B. M i l e s Larson argued, Stanford, Montana Submitted: October 23, 1981 ~ e c i d e d : January 1 4 , 1982 F i l e d : JMj 14 1983, M r . J u s t i c e Fred J. Weber delivered t h e Opinion of t h e Court. The Garfield County Bank (Bank) of Jordan, Montana, f i l e d a c r e d i t o r ' s claim a g a i n s t t h e e s t a t e of David Larry Harbaugh (Larry Harbaugh). The e s t a t e disallowed t h e claim. The Bank p e t i t i o n e d t h e 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 , Garfield County, Montana, f o r allowance of t h e claim. The p e t i t i o n was denied and t h e Bank appealed. 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, Robert Baugh, Alta Baugh, and Larry Harbaugh signed a promissory note with t h e Garfield County Bank i n t h e amount of $15,000. The note was payable 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 balance was due. The promissory note contained t h e following language: "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 holder hereof a t any t i m e i n good f a i t h believes t h a t t h e prospect of due and punctual payment of t h i s note is impaired, t h i s note s h a l l become immediately due and payable a t t h e option of t h e holder hereof." T h e proceeds of t h e note w e r e used by Robert 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 land held i n j o i n t tenancy by Paul Harbaugh, Cornelia Harbaugh and Larry Harbaugh. Paul Harbaugh and Cornelia Harbaugh a r e t h e p a r e n t s of Larry Harbaugh. The t e n a c r e s of land were leased t o Robert Baugh pursuant t o a w r i t t e n l e a s e f o r a t e r m of ninety-nine years. The l e a s e contained a c l a u s e s p e c i f i c a l l y forbidding t h e s u b l e t t i n g of t h e premises by Robert Baugh without t h e p r i o r consent of t h e l e s s o r s . The land on which t h e basement, w e l l and sewer a r e located i s i n t h e midst of t h e ranch owned by Paul Harbaugh and Cornelia Harbaugh. A t t h e t i m e t h e loan w a s made, Rob ct Baugh and Larry Harbaugh intended t o become p a r t n e r s i n t h e ranching b u s i n e s s on t h e Harbaugh ranch. Robert Baugh i n i t i a l l y approached t h e Harbaughs about o b t a i n i n g t h e loan and w a s d i r e c t e d t o go 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 Larry Harbaugh cosign t h e promissory n o t e s i n c e Robert Baugh was unable 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 basement, w e l l and s e w e r w e r e b u i l t , Robert Baugh and Larry Harbaugh decided n o t t o become p a r t n e r s and Robert Baugh moved t o Jordan. Larry Harbaugh d i e d on November 5, 1979, and t h e p r o b a t e of t h e estate 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 published i n t h e Jordan Tribune. The G a r f i e l d County Bank f i l e d a claim a g a i n s t t h e estate of Larry Harbaugh on February 1 3 , 1980. The claim was based upon t h e promissory 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 claim was disallowed on June 23, 1980, and a p e t i t i o n f o r allowance of t h e claim 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. Hearing on t h e p e t i t i o n was had on January 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 allowance of the claim, and t h i s appeal followed. The G a r f i e l d County Bank has r a i s e d two i s s u e s i n its appeal : (1) Did t h e d e a t h of Larry 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 Court err by completely exonerating t h e e s t a t e of Larry Harbaugh from l i a b i l i t y on t h e note? W e f i n d t h a t t h e f i r s t i s s u e i s n o t properly b e f o r e t h i s Court. The Bank argued both a t t h e hearing below and on appeal 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 gave t h e Bank t h e r i g h t t o d e c l a r e t h e note due and payable 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 death of Larry Harbaugh had impaired t h e prospect of payment of t h e note. However, n e i t h e r t h e claim a g a i n s t t h e e s t a t e nor t h e p e t i t i o n f o r allowance of claim requested more than t h e establishment of t h e e x i s t e n c e of t h e debt c r e a t e d by t h e signing of t h e promissory note. The Bank d i d not ask t h a t t h e e n t i r e balance be declared due and owing. Therefore, 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 properly before us 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 Court e r r e d by i s s u i n g i t s order which, i n e f f e c t , completely exonerated 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. Since Harbaugh signed t h e instrument f o r t h e purpose of lending h i s name t o another p a r t y t o t h e instrument, he was an accommodation maker. Section 30-3-415(1), MCA. I n Montana an accommodation maker i s primarily l i a b l e on t h e instrument which he signs. "Subsection (1) recognizes 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 includes a g u a r a n t o r ) , and it is h i s only d i s t i n g u i s h - ing 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 only i n t h a t h i s l i a b i l i t y is on t h e instrument and he is a s u r e t y f o r another p a r t y t o it. H i s o b l i g a t i o n i s t h e r e f o r e determined by t h e capacity i n which he signs. A n - accommodation maker o r acceptor is bound on -- t h e instrument w i t h o u t a n y r e s o r t 7 0 -- h i s p r i n c i p a l , while an accommodation indorser may be l i a b l e only a f t e r presentment, n o t i c e of dishonor 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 n accommodation maker was a l s o primarily l i a b l e on t h e instrument p r i o r t o t h e adoption of t h e Uniform Commercial Code. A s t h i s Court s a i d i n Merchants' Nat. Bank v. Smith (1921), 59 Mont. 280, 196 P. 523: ". . . t h e f a c t t h a t L e e signed t h e note with- o u t receiving any p a r t of t h e consideration, and f o r t h e purpose only of lending h i s name t o Smith, does not a l t e r h i s s i t u a t i o n . H e is l i a b l e notwithstanding t h e bank, a t t h e time it took t h e note, knew him t o be only an 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 an accommodation maker gives rise t o a duty on h i s p a r t t o t h e holder f o r value, 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 , than t h a t imposed upon a maker who received value." 59 Mont. a t 292, 196 P. a t 525. The death of Larry Harbaugh d i d not extinguish h i s o b l i g a t i o n . Neither t h e U.C.C., nor t h e s t a t u t e s on guaranty and suretyship, provide t h a t death r e s u l t s i n t h e discharge o r exoneration of one i n Larry 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, chapter 11, p a r t 2 , MCA; and T i t l e 28, chapter 11, p a r t 4 , MCA. Indeed, t h e common law r u l e is t h a t death does not exonerate a s u r e t y . U.S. ex rel. Wilhelm v. Chain (1937), 300 U.S. 31, 57 S . C t . 394, 81 The D i s t r i c t Court should have found t h a t t h e e s t a t e owed t h e balance under t h e t e r m s of t h e promissory note, t h a t o b l i g a t i o n being a s an accommodation maker. I n accordance with s e c t i o n 72-3-805(2), t h e c o u r t should have allowed t h e claim i n f u l l . W e note t h a t such allowance does n o t necessarily 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 estate. The payment of claims i s provided f o r i n s e c t i o n s 72-3- 808, 72-3-814 and 72-3-815, MCA. There a r e a number of a l t e r n a t i v e s a v a i l a b l e t o t h e personal r e p r e s e n t a t i v e with regard t o payment. A s an example, t h e personal r e p r e s e n t a t i v e may seek 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 personal r e p r e s e n t a t i v e , of course, may pay t h e same i n cash. I n t h i s i n s t a n c e , it appears t h a t s e c t i o n 72-3-814(2) i s p a r t i c u l a r l y appropriate. Under t h a t s e c t i o n , t h e personal 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 purpose t o arrange f o r p o s s i b l e payment on t h e happening of t h e contingency t h a t t h e primary maker d e f a u l t s i n payment, with such payment t o be secured by a mortgage o r o t h e r s e c u r i t y on e s t a t e property. Such an arrangement would allow d i s t r i b u t i o n of a s s e t s without a r e q u i r e d advance payment of 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 reasonably necessary i f t h e r e i s t o be a postponement i n t i m e of payment. Such a procedure would allow t h e makers Robert and A l t a Baugh t o continue t o make t h e payments f o r which they a r e r e s p o n s i b l e . The o r d e r of t h e D i s t r i c t Court disallowing t h e claim is reversed. The District Court i s d i r e c t e d t o e n t e r its o r d e r 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 of t h e manner of payment i n accordance 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 . Chief J u s t i c e