Title: Wallace v. Pinnacle Bank - Wyo.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

EARL D. WALLACE and NAWANA V. WALLACE v. PINNACLE BANK - WYOMING2012 WY 64Case Number: S-11-0230Decided: 05/04/2012This opinion is subject to formal revision before publication in Pacific Reporter Third.  Readers are requested to notify the Clerk of the Supreme Court, Supreme Court Building, Cheyenne, Wyoming 82002, of any typographical or other formal errors so that correction may be made before final publication in the permanent volume.  
APRIL 
TERM, A.D. 2012
 
 
EARL 
D. WALLACE and NAWANA V. 
WALLACE,Appellants(Defendants),v.PINNACLE BANK - 
WYOMING,Appellee(Plaintiff).
 
Appeal 
from the District Court of Hot Springs 
County
The 
Honorable Robert E. Skar, Judge 
 
 
Representing 
Appellants:
Stephen 
R. Winship of Winship & Winship, P.C., Casper, Wyoming.  
 
Representing 
Appellee:
Michael 
Messenger and Curtis Cheney of Messenger & Jurovich, P.C., Thermopolis, 
Wyoming.  Argument by Mr. 
Cheney.
 
Before 
KITE, C.J., and GOLDEN, HILL, VOIGT, and BURKE, 
JJ.
 
 
GOLDEN, 
Justice.
 
[¶1]      Earl D. Wallace 
and Nawana V. Wallace (the Senior Wallaces) borrowed $15,789 from Pinnacle Bank 
- Wyoming (Pinnacle) to finance a vehicle the Senior Wallaces purchased for 
their son and his wife (the Junior Wallaces).  Although the Senior Wallaces borrowed 
the money in their own names and agreed to make the payments on the loan, the 
collateral for the loan was the vehicle they bought for and titled in the Junior 
Wallaces’ names.  To that end, the 
Junior Wallaces signed a Third Party Security Agreement pledging the vehicle as 
collateral.
 
[¶2]      The day following 
the loan transaction, the Junior Wallaces filed a bankruptcy petition.  During the course of the bankruptcy, the 
bankruptcy trustee seized and eventually sold the vehicle to benefit the 
bankruptcy estate.  The Senior 
Wallaces thereafter stopped making payments on the loan.  
 
[¶3]      After making 
demand for payment, Pinnacle filed a complaint in district court seeking damages 
in the amount of the principal due on the note together with accrued interest, 
late fees, and attorney fees.  The 
Senior Wallaces contended that because Pinnacle had not taken sufficient steps 
to protect the vehicle from seizure by the bankruptcy court, the Senior Wallaces 
no longer had any obligation to repay the loan.  The district court rejected the defenses 
asserted by the Senior Wallaces and granted Pinnacle’s motion for summary 
judgment.  We 
affirm.
 
ISSUES
 
[¶4]      The Senior 
Wallaces present the following issues on appeal:
 
1.         
Whether Appellee is barred from collecting from Appellants due to the 
application of the doctrine of avoidable consequences?
 
2.         
Whether Appellants’ loan obligation was discharged by a supervening 
frustration?
 
3.         
Whether Appellee’s impairment of the collateral securing the loan 
precludes it from collecting on the loan?
 
4.         
When Appellee transferred its lien to the Bankruptcy Trustee, was 
Appellee no longer the proper party in interest to collect on the loan 
obligation?
 
5.         
Whether the failure to provide Appellants with notice of the sale of the 
collateral should have barred Appellee’s suit?
 
FACTS
 
[¶5]      On Saturday, 
August 22, 2009, the Senior Wallaces purchased a 2009 Nissan Versa from a 
Riverton, Wyoming, automobile dealership.  
They paid for it in full with a check in the amount of $15,779, and then 
on Monday, August 24, 2009, they borrowed $15,789 from Pinnacle, a Thermopolis, 
Wyoming, bank, to cover the cost of the vehicle.  In furtherance of the loan, the Senior 
Wallaces signed a document entitled “Note, Disclosure, and Security Agreement” 
(Loan Agreement).   

 
[¶6]      The Loan 
Agreement specified that the purpose of the loan was to provide a vehicle for 
the Senior Wallaces’ son.  To this 
end, during the meeting with the Pinnacle loan officer that handled the 
transaction, the auto dealership was contacted and asked to re-issue the 
Nissan’s ownership documents in the Junior Wallaces’ names.  The dealership complied and issued a 
“Dealer Reassignment and Odometer Statement,” dated August 22, 2009, in the 
Junior Wallaces’ names and signed by the Junior Wallaces.  
 
[¶7]      Through the Loan 
Agreement, the Senior Wallaces agreed to repay the amount borrowed with monthly 
payments over the course of approximately five years.  The Loan Agreement also contained a 
“Third Party Agreement” (Security Agreement), which was signed by the Junior 
Wallaces.  Through the Security 
Agreement, the Junior Wallaces pledged the 2009 Nissan as collateral for the 
loan, but the Junior Wallaces assumed no obligation for the debt itself.  
 
[¶8]      On August 25, 
2009, the day after execution of the Loan Agreement and the Security Agreement, 
the Junior Wallaces, who were residents of Idaho, filed a Chapter 7 bankruptcy 
petition in the United States Bankruptcy Court for the District of Idaho.  As part of that filing, the Junior 
Wallaces listed the 2009 Nissan in a schedule of personal property that they 
owned.  
 
[¶9]      On February 17, 
2010, during the course of the Junior Wallaces’ bankruptcy proceeding, the 
bankruptcy trustee made a demand on Pinnacle to release its lien on the Nissan, 
on the ground that the lien was a preferential transfer.  On February 25, 2010, Pinnacle 
stipulated to the release of its lien on the vehicle.  On March 11, 2010, the bankruptcy 
trustee issued a notice of the intended sale of the vehicle and directed that 
any objections to that sale must be made within twenty days.  On April 8, 2010, the Junior Wallaces, 
through their bankruptcy attorney, filed an objection to the sale, but the 
objection was withdrawn the following day.  
On April 26, 2010, the bankruptcy court approved the stipulation between 
the bankruptcy trustee and Pinnacle to avoid Pinnacle’s lien on the 
vehicle.  
 
[¶10]   The Senior Wallaces made payments 
as required by the Loan Agreement through July 8, 2010.  They stopped making payments owing a 
principal balance of $13,611.82.  
After the Senior Wallaces refused Pinnacle’s demand for payment, Pinnacle 
filed a complaint seeking damages in the amount of the principal due on the note 
together with accrued interest, late fees, and attorney fees. The district court 
granted Pinnacle’s summary judgment motion, explaining:
 
            
All right.  Based on what 
I’ve heard here today, the Court is going to grant Summary Judgment in favor of 
the Plaintiffs on their note.  The 
Court finds that the object and purpose of the loan was not frustrated by the 
efforts of the Bank in this matter.  
That the Defendants are not the primary beneficiary of the collateralized 
loan, it’s really there to protect the bank, and under this circumstance the 
Defendants are the debtors under the loan and are responsible to make the 
payments.  The failure of the 
collateral was not a failure of the underlying note.
 
STANDARD 
OF REVIEW
 
[¶11]   Motions 
for summary judgment come before the trial court pursuant to Rule 56(c) of the 
Wyoming Rules of Civil Procedure, which provides 
that
 
[t]he 
judgment sought shall be rendered forthwith if the pleadings, depositions, 
answers to interrogatories, and admissions on file, together with the 
affidavits, if any, show that there is no genuine issue as to any material fact 
and that the moving party is entitled to a judgment as a matter of 
law.
 
Formisano 
v. Gaston, 
2011 WY 8, ¶ 3, 246 P.3d 286, 288 (Wyo. 2011). We 
review a grant of summary judgment as follows:
 
We 
review a summary judgment in the same light as the 
district court, using the same materials and following the same standards. [Snyder v. Lovercheck, 992 P.2d 1079, 1083 (Wyo. 1999)]; 40 
North Corp. v. Morrell, 
964 P.2d 423, 426 (Wyo. 
1998). 
We examine the record from the vantage point most favorable to the party 
opposing the motion, and we give that party the benefit of all favorable 
inferences that may fairly be drawn from the record. Id. 
A material fact is one which, if proved, would have the effect of establishing 
or refuting an essential element of the cause of action or defense asserted by 
the parties. Id. 
If the moving party presents supporting summary judgment materials demonstrating no 
genuine issue of material fact exists, the burden is shifted to the non-moving 
party to present appropriate supporting materials posing a genuine issue of a 
material fact for trial. Roberts 
v. Klinkosh, 
986 P.2d 153, 155 (Wyo. 
1999); 
Downen 
v. Sinclair Oil Corp., 
887 P.2d 515, 519 (Wyo. 
1994). 
We review a grant of summary 
judgment deciding a question of 
law de novo and afford no deference to the district court’s ruling. Roberts 
v. Klinkosh, 
986 P.2d  at 156; 
Blagrove 
v. JB Mechanical, Inc., 
934 P.2d 1273, 1275 (Wyo. 
1997).
 
Lindsey 
v. Harriet, 
2011 WY 80, ¶ 18, 255 P.3d 873, 880 (Wyo. 
2011).
 
DISCUSSION
 
[¶12]   The Senior Wallaces do not dispute 
that they entered into the Loan Agreement with Pinnacle or that they defaulted 
on that loan still owing $13,611.82, plus interest.  They instead contend that their 
obligation to repay the amount they borrowed was extinguished when the 
collateral vehicle was lost to the bankruptcy estate.  Specifically, the Senior Wallaces 
contend that they are no longer obligated to repay Pinnacle because: 1) Pinnacle 
failed to mitigate its damages by contesting the bankruptcy trustee’s claim to 
the vehicle; 2) the Loan Agreement was discharged by a supervening frustration; 
3) Pinnacle is no longer the proper party in interest to enforce the Loan 
Agreement; and 4) Pinnacle’s claim is barred by the Uniform Commercial Code 
(U.C.C.).
 
1.         
Failure to Mitigate Damages
 
[¶13]   The Senior Wallaces contend that 
when the Junior Wallaces filed their bankruptcy petition, the Junior Wallaces 
had neither title to nor possession of the Nissan, and that Pinnacle was thus 
negligent in stipulating to a release of its lien.  The Senior Wallaces argue then that it 
was Pinnacle’s own negligence that caused it to lose the collateral for its loan 
and that Pinnacle thereby failed to mitigate its damages and should be barred 
from any recovery.
 
[¶14]   We agree that under certain 
circumstances a party’s failure to mitigate its damages may present a bar to 
recovery.  See Kerbs v. Walck, 2010 WY 53, ¶ 33, 229 P.3d 974, 981 
(Wyo. 2010).  This case does not 
present such circumstances.
 
[¶15]   First, the Senior Wallaces’ 
argument is premised on its insistence that Pinnacle had a duty to protect the 
collateral vehicle from seizure by the bankruptcy trustee after the Junior 
Wallaces filed their bankruptcy petition.  
No such duty can be found in the Loan Agreement.  The Loan Agreement in fact provides to 
the contrary.  Under the “Additional 
Terms” section applicable to the Senior Wallaces’ Loan Agreement, the document 
provides that Pinnacle “may release any Borrower, endorser, guarantor, surety, 
accommodation maker, or any other cosigner,” and Pinnacle “may release, 
substitute, or impair any Property securing this Loan Agreement.”  Pinnacle was thus under no obligation to 
protect its lien on the collateral vehicle from seizure by the bankruptcy 
trustee.  
 
[¶16]   Second, the Loan Agreement 
specifically gives Pinnacle several remedies to choose from in the event of a 
default.  Pinnacle was permitted, 
among other remedies, to demand payment on all or any part of the amount owing 
under the Loan Agreement, to demand delivery of the collateral property and 
dispose of that property as provided by law, or to use any other remedy provided 
by law.  Likewise, by law, Pinnacle, 
like any other creditor, was permitted, among other remedies, to take possession 
of the property and accept it as payment in full or sell it, or to take a 
judgment on the underlying obligation and proceed under the judgment.  See Eggeman v. Western Nat’l Bank, 596 P.2d 318, 321-22 (Wyo. 
1979).  Not only was Pinnacle under 
no obligation to protect its lien on the collateral vehicle, it was under no 
obligation to foreclose on that collateral for repayment in the event of a 
default.
 
[¶17]   Finally, even if the Loan Agreement 
itself did not preclude the Senior Wallaces’ mitigation argument, that argument 
is misplaced in these circumstances because of the simple fact that when 
Pinnacle released its lien on the collateral vehicle, it had no damages to 
mitigate.  Pinnacle did not suffer 
damages until the Senior Wallaces defaulted on the Loan Agreement, several 
months after Pinnacle released its lien.  
If there were a duty to mitigate, it would not have been implicated until 
well after Pinnacle released its lien.
 
2.         
Discharge by Supervening Frustration
 
[¶18]   The Senior Wallaces next argue that 
they are excused from performance under the Loan Agreement based on the doctrine 
of commercial frustration.  
Specifically, the Senior Wallaces contend that the purpose of the loan 
was to allow them to purchase a vehicle for their son, and when Pinnacle 
released its lien on that vehicle, thereby allowing the bankruptcy trustee to 
seize the vehicle, Pinnacle effectively destroyed “the basic assumption 
underlying the loan.”  We do not 
agree that Pinnacle’s action frustrated the purpose of the loan and reject this 
as a basis to excuse the Senior Wallaces’ performance under the Loan 
Agreement.  
 
[¶19]   This Court has defined the doctrine 
of commercial frustration in the following terms:
 
“ 
* * * The doctrine of commercial frustration is close to but distinct from the 
doctrine of impossibility of performance. Both concern the effect of supervening 
circumstances upon the rights and duties of the parties but in cases of 
commercial frustration '[p]erformance remains possible but the expected value of 
performance to the party seeking to be excused has been destroyed by a 
fortuitous event, which supervenes to cause an actual but not literal failure of 
consideration.’   Lloyd 
v. Murphy, 
25 Cal. 2d 48, 153 P.2d 47, 50 (Cal. en banc 1944).” 
 
Downing 
v. Stiles, 
635 P.2d 808, 811 (Wyo. 1981) 
(quoting Howard 
v. Nicholson, 
556 S.W.2d 477, 482 
(Mo. App. 1977)).  The party seeking 
to be excused from performance under a contract based on this doctrine must 
prove the following elements: 
 
1.         
The contract is at least partially executory.
 
2. 
        
A supervening event occurred after the contract was 
made.
 
3. 
        
The non-occurrence of such event was a basic assumption on which the 
contract was made.
 
4. 
        
Such occurrence frustrated the party’s principal purpose for the 
contract.
 
5. 
        
The frustration was substantial, and
 
6. 
        
The party has not agreed, expressly or impliedly, to perform in spite of 
the occurrence of the event.
 
Downing, 
635 P.2d  at 814-15.
 
[¶20]   We need not address each of these 
elements, because it is clear that the Senior Wallaces cannot prove the third 
element set forth above – that is, that Pinnacle’s retention of its lien was “a basic assumption on which the contract was 
made.”  This argument, like 
the mitigation argument, is based on the premise that the collateral provision 
in the Loan Agreement was meant to benefit or protect the borrower, and that 
Pinnacle had a duty to hold and protect its collateral lien.  The Loan Agreement does not support that 
premise.  The Loan Agreement, as 
discussed above, allows Pinnacle to release, substitute or impair the loan’s 
collateral, and for its remedies, to foreclose on the collateral or take any 
other lawful action.  The Loan 
Agreement’s terms make it clear that the pledging of collateral is solely for 
the protection and benefit of the bank, and it is impossible to argue that a 
basic assumption on which the loan was made was that Pinnacle would not release 
its lien, when the Loan Agreement itself expressly allows Pinnacle to do just 
that.  
 
[¶21]   Moreover, there was no failure of 
consideration.  Pinnacle agreed to 
loan the Senior Wallaces $15,789, which loan the Senior Wallaces indicated in 
the Loan Agreement would be used to purchase a vehicle for their son.  It is undisputed that Pinnacle did make 
the loan to the Senior Wallaces, that the Senior Wallaces did purchase a 2009 
Nissan, and that the Senior Wallaces did transfer that vehicle to the Junior 
Wallaces.  Pinnacle performed as 
required under the Loan Agreement, there was no supervening frustration of the 
Agreement’s purpose, and the Senior Wallaces are not excused from their 
obligations under the Loan Agreement.
 
3.         
Proper Party in Interest
 
[¶22]   The Senior Wallaces argue next that 
the collateral and note were inextricably intertwined and when Pinnacle released 
its lien, it transferred to the bankruptcy trustee both the lien and the 
underlying note.  Thus, they 
contend, Pinnacle no longer has a note on which to seek judgment.  This argument finds no support in law 
and is contrary to the terms of the Loan Agreement, the Security Agreement and 
the bankruptcy court’s “Order Approving Stipulation for Avoidance of 
Lien.”
 
[¶23]   As the Senior Wallaces correctly 
note, this Court has recognized that an assignment of a note carries its 
attached mortgage or lien with it, while an assignment of the mortgage or lien 
alone is a nullity.  See Bradburn v. Wyoming Trust Co. of Casper, 
51 Wyo. 73, 88, 63 P.2d 792, 797 
(1936).  This does little, however, 
to guide our decision here, where it is clear that the Loan Agreement and the 
Security Agreement are separate agreements, and Pinnacle did not transfer its 
Loan Agreement.
 
[¶24]   The Loan Agreement was the note 
from the Senior Wallaces agreeing to repay the Pinnacle loan, which also allowed 
Pinnacle to release any collateral securing the loan.  The Security Agreement was the 
third-party agreement signed by the Junior Wallaces pledging the vehicle as 
collateral for the loan, without any agreement by the Junior Wallaces to be 
personally responsible for the debt under the Loan Agreement.  Under these circumstances, the debt, by 
the terms of the Loan Agreement, survives separation from the collateral.  Whether the lien has any separate 
meaning in the bankruptcy context or any other context is immaterial.  Pinnacle seeks enforcement of the Loan 
Agreement, not its lien.
 
[¶25]   Additionally, there is no 
indication in the bankruptcy court’s “Order Approving Stipulation for Avoidance 
of Lien” that Pinnacle transferred the Loan Agreement.  The order does not address Pinnacle’s 
note from the Senior Wallaces, or in any manner make that note property of the 
bankruptcy estate.  Instead, the 
order’s clear objective, as indicated by its title, was simply to avoid 
Pinnacle’s lien on the vehicle.  
Specifically, the order directed that “Pinnacle Bank’s lien in a 2009 
Nissan Versa owned by the Debtors (the “Vehicle”) is hereby avoided and the 
Vehicle and all proceeds therefrom constitutes property of the bankruptcy 
estate.” Again, whether the lien, which the order further directs to be held for 
the bankruptcy estate’s benefit, has any value independent of the Senior 
Wallaces’ note is not material to our decision.
 
4.         
Barring of Claim by the U.C.C.
 
[¶26]   The Senior Wallaces’ final argument 
is that Pinnacle’s claim is barred by the U.C.C.’s provision requiring 
notification prior to disposition of collateral.  We again disagree.
 
[¶27]   The U.C.C. notice provision relied 
on by the Senior Wallaces applies only when property is disposed of after a 
default.  See Wyo. Stat. Ann. § 34.1-9-610(a) 
(LexisNexis 2011); Wyo. Stat. Ann. § 34.1-9-611(b) (LexisNexis 2011).  Pinnacle released its lien on the Junior 
Wallaces’ vehicle months before the Senior Wallaces defaulted on their Loan 
Agreement.  The U.C.C. therefore 
does not bar Pinnacle’s claim.
 
CONCLUSION
 
[¶28]   The Senior Wallaces are in default 
on their Loan Agreement with Pinnacle, and are not excused from performance by 
any of their asserted defenses.  We 
therefore affirm the judgment of the district court in favor of Pinnacle and 
remand for further proceedings consistent with this opinion, including a 
determination of the accrued interest and attorney fees and execution on the 
judgment.1
 
 
 
FOOTNOTES
1The Senior Wallaces contend that disputes as to when the Junior Wallaces 
obtained title to and possession of the collateral vehicle have created material 
issues of fact, on appeal, that require reversal and a remand for a jury 
trial.  The question of when the 
Junior Wallaces obtained title to and possession of the vehicle has not, 
however, affected our analysis of the issues on appeal, and we therefore decline 
the requested remand.