Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-91-03135/USCOURTS-ca10-91-03135-0/pdf.json

Parties Involved:
American Capital Resources, Inc.
Appellant
Hall Lithographing Co., Inc.
Appellee

Document Text:

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT APR 14 i99Z. 

In re: HALL LITHOGRAPHING CO., INC., 

Debtor. 

AMERICAN CAPITAL RESOURCES, INC., 

Appellant, 

v. 

HALL LITHOGRAPHING CO., INC., 

Appellee. 

) 

) 

) 

) 

.. OB~ H.'l' L. HOECKER 

Clerk 

) No. 91-3135 

) (D.C. No. 90-4057-S) 

) (D. Kan.) 

) 

) 

) 

) 

) 

) 

) 

ORDER AND JUDGMENT* 

Before SEYMOUR and ANDERSON, Circuit Judges, and SAM,** District 

Judge. 

**Honorable David Sam, District Judge, United States District 

Court for the District of Utah, sitting by designation. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

* This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

Appellate Case: 91-3135 Document: 010110242327 Date Filed: 04/14/1992 Page: 1
34(a); 10th Cir. R. 34.1.9. The case is therefore ordered 

submitted without oral argument. 

Creditor American Capital Resources, Inc. (ACR) appeals the 

district court's Memorandum and Order affirming the bankruptcy 

court's determination of the a.mount of the debt owed ACR by the 

debtor, Hall Lithographing Co., Inc. (Hall). ACR is in the 

business of leasing and financing business equipment. Hall is a 

printing business which initially entered into a leasing agreement 

with ACR in June 1980 (Lease I). Pursuant to Lease I, Hall was to 

pay $447,616.00 in thirty-two quarterly installments of $13,988.00 

each for certain pieces of equipment. In November 1980, Hall 

entered into another agreement for the amount of $891,968.00 to be 

paid in thirty-two quarterly installments of $27,874.00 each in 

order to obtain additional equipment from ACR (Lease II). Both 

leases were subject to a supplemental agreement setting forth the 

terms and conditions for purchase of the equipment at the end of 

the lease period. Neither lease stated an interest rate. 

In December 1985, due to Hall's default on both leases, the 

parties entered into a third agreement in an effort to avoid a 

foreclosure action (1985 agreement). This third agreement 

consolidated the debts, changed the quarterly payments to monthly 

payments, and extended the payment period. The 1985 agreement 

stated the amount of combined debt still owed by Hall as 

$503,628.23. The parties agree that this calculation included 

simple interest of fourteen percent on the debt remaining on Lease 

I and sixteen percent on the debt remaining on Lease II. The 

parties entered into yet another agreement in 1987, restating the 

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Appellate Case: 91-3135 Document: 010110242327 Date Filed: 04/14/1992 Page: 2
amount of unpaid debt, but changing the fixed interest rates to 

one that readjusted at three percent above prime (1987 agreement). 

The bankruptcy court found, and the parties agree, that neither of 

the later agreements was intended to compromise an amount in 

dispute or to change the amounts due under the original lease 

agreements. Despite these attempts, it appears that all efforts 

to financially save Hall failed, and it ultimately filed 

bankruptcy in 1989. 

Hall apparently objected to the amount of debt stated by ACR 

in its proof of claim in the bankruptcy proceeding. Following a 

hearing to determine the amount of the debt, the bankruptcy court 

determined that (1) the original lease agreements were financing 

transactions intended to finance a specified amount at a specified 

interest rate; (2) the original lease agreements were incorporated 

into the 1985 and 1987 agreements, and these later agreements were 

also financing transactions; (3) neither of the latter two 

agreements was intended to compromise and settle an amount in 

dispute, nor were they intended to abrogate the original lease 

agreements; (4) ACR used an improper procedure in calculating the 

amounts due as stated in the 1985 and 1987 agreements; (5) ACR's 

mistake was unintentional; and (6) the correct amount of debt owed 

as stated by Hall's expert witness is $184,451.40 plus interest 

from and after December 10, 1989, rather than the amount of 

$327,929.66 plus interest as claimed by ACR. 

On appeal, ACR challenges the decision of the bankruptcy 

court by asserting (1) the method employed by ACR for calculating 

the total amount due under both leases, carried forward into the 

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later agreements, was correct; (2) the lease agreements should not 

be characterized as financing arrangements; (3) the debt amount 

stated in the 1987 agreement is an "amount stated" and as such is 

conclusive absent sufficient evidence to overcome prima facie 

validity; and (4) Hall should be estopped from challenging the 

amount stated in the 1987 agreement. We review the bankruptcy 

court's legal conclusions de novo, and affirm the bankruptcy 

court's factual findings if not clearly erroneous. Citizens Nat'l 

Bank & Trust Co. v. Serelson (In re Burkart Farm & Livestock), 938 

F.2d 1114, 1115 (10th Cir. 199l)(citation omitted). After careful 

review of the record, we conclude that the bankruptcy court's 

determinations are supported by substantial, competent evidence 

and are not clearly erroneous or incorrect applications of the 

law. We affirm. 

ACR first argues that the bankruptcy court's determination 

that ACR erred in the method used to calculate the amount of debt 

owed by Hall is incorrect. Hall's expert witness, Stuart 

Douthett, testified to the bankruptcy court that at the time of 

the execution of the original lease agreements, ACR mistakenly 

applied Hall's first payment principally to interest, rather than 

treating the payment as a "down payment" to be applied totally to 

principal. This mistake, according to Douthett, generated 

incorrect amounts in the amortization schedule created and the 

amount of interest charged. ACR argues that its vice-president, 

Thomas Mulligan, who was in charge of the calculations and 

negotiations surrounding the 1985 and 1987 agreements, is more 

knowledgable and experienced in the intricacies of these kinds of 

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Appellate Case: 91-3135 Document: 010110242327 Date Filed: 04/14/1992 Page: 4
financing transactions and, therefore, his method of calculation, 

applying the first payment principally to interest, is correct. 

The bankruptcy court found the testimony and conclusions of 

Hall's expert to be more credible. Bankruptcy Rule 8013, which 

conforms to Fed. R. Civ. P. 52(a), states that "[f]indings of 

fact, whether based on oral or documentary evidence, shall not be 

set aside unless clearly erroneous, and due regard shall be given 

to the opportunity of the bankruptcy court to judge the 

credibility of the witnesses." See Branding Iron Motel, Inc. v. 

Sandlian Equity, Inc . (In re Branding Iron Motel, Inc . ), 798 F.2d 

396, 399 (10th Cir. 1986); see also King Resources Stockholders' 

Protective Comm . v. Baer (In re King Resources Co.), 651 F . 2d 

1326, 1336-37 (10th Cir. 1980)(trier of fact has right to judge 

credibility of witnesses and credit one expert opinion over 

another). The parties agree that it was their intent to have the 

interest start at the time the agreements were executed, June 30, 

1980, and June 1, 1981, respectively. Consequently, if the court 

had accepted ACR's accounting and calculation as correct, it would 

follow, as Hall argues, that it would have paid interest on the 

loans for the three months prior to execution of the loan 

agreements. ACR argues that this method is customary in the 

industry. We have no basis for refuting this assertion. However, 

accepting ACR's procedures as customary does not preclude a 

determination of incorrectness. 

ACR further asserts that because the original leases do not 

state an interest rate, the agreements should not be characterized 

as financing transactions. The bankruptcy court found, however, 

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that sufficient evidence exists outside the leases to indicate 

that the leases contained an interest rate and that it was the 

parties' intent to treat the leases as financing arrangements. We 

conclude that ACR's argument is further negated by its contention 

that the "Rule of 78's," a rule applied to home mortgages and 

similar financing transactions, was the method used to calculate 

the apportionment of payments to principal and interest. 1 We do 

not believe ACR's argument regarding the Rule of 78's to be 

dispositive of the issue in this case. The argument would, 

however, appear to belie ACR's contention that the agreements were 

not intended to be financing arrangements. 

Next, ACR argues that the debt balance stated in the 1987 

agreement is an "amount stated" and, regardless of the correctness 

of the original lease agreements, should be accepted as conclusive 

and final. Both this court, and Kansas law, support the 

contention that an "account stated" may be construed as a binding 

agreement in place of the original. 

"'An account stated is an agreement, express or implied, 

between parties who have had previous transactions with 

each other, fixing and determining the amounts due in 

respect to such transactions, and, when made, such 

account stated becomes a new agreement and takes the 

place of the obligations resting upon either party by 

reason of the prior account.' (Harrison v. Henderson, 

67 Kan. 202, 205, 72 Pac. 878 [Kan. 1903].) 

1 The "Rule of 78's" is a method of apportionment of payments 

customarily used in financing arrangements whereby the initial 

payments are almost entirely applied to interest. This ratio 

shifts over the life of the mortgage so that the later payments 

are applied almost solely to principal. The Rule of 78's has been 

held nonreflective of actual interest expense for purposes of 

income tax computation. Prabel v. Commissioner, 882 F.2d 820, 828 

(3d Cir. 1989). 

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Continental Am. Corp. v. Pacific Balloon Co., 660 P.2d 84, 86 

(Kan. Ct. App. 1983)(quoting Dettmer v. Fulls, 251 P. 396, 396 

(Kan. 1926)); see also Kansas Power & Light Co. v. Hugoton Prod. 

Co., 251 F.2d 946, 948 (10th Cir. 1958)(account stated is only 

prima facie evidence of its correctness). The law will imply an 

enforceable agreement to pay when the balance owing is stated and 

agreed upon. Quincy Lumber Co. v. Saia, 391 P.2d 144, 147 (Kan. 

1964) . 

However, mistake, as well as fraud, error, and omission, is 

sufficient legal reason for not permitting an account stated to 

stand as final and conclusive. Kansas Power & Light Co. v. 

Hugoton Prod. Co., 251 F.2d at 948 (citing Swaller v. Williamson 

Milling Co., 226 P. 1001, 1008 (Kan. 1924)). The bankruptcy court 

acknowledged that ACR's calculation method may have been its 

standard procedure and that the mistake was not intentional. 

Appellant's Br. Attach. 1A at 2. The bankruptcy court further 

stated: "[t]he court could perhaps base its legal conclusion on 

the law relating to an account stated. However, the Court 

determines that the agreements of the parties incorporating the 

original lease terms allow this court to determine the proper 

amount of the claim in accordance with 11 u.s.c. S 502(b)." 

Bankruptcy Court's Order Determining Debt at 2. We agree that 

under the bankruptcy court's power to determine the amount of the 

debt as stated in 11 u.s.c. § 502(b), or under the applicable law 

relating to an account stated, the conclusions of the bankruptcy 

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court were supported by substantial evidence and credible 

testimony. The decision to credit the testimony of Douthett was 

within the court's sound discretion and was not clearly erroneous. 

Finally, ACR argues, in a somewhat general manner, that Hall 

should be estopped from challenging the amount of the claim. 

"A party asserting equitable estoppel must show that 

another party, by its acts, representations, admissions, 

or silence when it had a duty to speak, induced it to 

believe certain facts existed. It must also show it 

rightfully relied and acted upon such belief and would 

now be prejudiced if the other party were permitted to 

deny the existence of such facts." United American 

State Bank & Trust Co. v. Wild West Chrysler Plymouth, 

Inc., 221 Kan. 523, 527, 561 P.2d 792, 795 (1977). 

Paul v. Monts, 906 F.2d 1468, 1474 (10th Cir. 1990)(quoting 

Harvester, Inc. v. Goodyear Tire & Rubber Co., 606 P.2d 498, 

499-500 (Kan. Ct. App. 1980)). Our review of the record indicates 

that ACR has failed to meet its burden of proving that Hall should 

be estopped from challenging the amount of the debt. See Paul v. 

Monts, 906 F.2d at 1474. 

"When reviewing factual findings, an appellate court is not 

to weigh the evidence or reverse the finding because it would have 

decided the case differently." In re Branding Iron Motel, Inc., 

798 F.2d at 400 (citing Anderson v. City of Bessemer City, 470 

U.S. 564, 573-74 (1985)). We can find no cogent reasons in the 

record which would support a determination that a mistake has been 

committed. See Travelers Ins. Co. v. Pikes Peak Water Co. {In re 

Pikes Peak Water Co.), 779 F.2d 1456, 1458 (10th Cir. 1985). The 

bankruptcy court was faced with a choice between two permissible 

views of the evidence and testimony. The court's choice is not 

clearly erroneous. See Anderson, 470 U.S. at 574. 

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Therefore, the judgment of the United States District Court 

for the District of Kansas is AFFIRMED. 

Entered for the Court 

David Sam 

District Judge 

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