## Judge Henley died on October 18, 1997. This opinion is consistent with hi s 1 

## vote at the panel’s conference following oral argument of the case on September 10, 1997. United States Court of Appeals
FOR THE EIGHTH CIRCUIT

___________ No. 96-4196

___________ First Bank Investors' Trust, *

Creditor-Appellant, * Appeal from the United States

v. * Western District of Missouri Tarkio College, *

Debtor-Appellee. * *

* District Court for the

*

*

*

___________ Submitted: September 10, 1997 Filed: November 12, 1997

___________ Before B OWMAN, Circuit Judge, HENLEY, Senior Circuit Judge , and MORRI S 1 SHEPPARD ARNOLD, Circuit Judge.

___________ BOWMAN, Circuit Judge.
This case arises from Tarkio College’s bankruptcy proceeding. Th e que stion presented is whether First Bank Investors' Trust (FBIT), as a n
overse cured creditor, is entitled to recover interest at the basi c contrac ted-for rate of twelve percent or at the post-maturity rate o f sixteen percent on the unpaid balance of a promissory note

## The Ho norable Dean Whipple, United States District Judge for the Wester n 2 

## District of Missouri.
T he Honorable Arthur B. Federman, United States Bankruptcy Judge for th e 3 

## Western District of Missouri. The pertinent language of the note provides: "POST MATURITY RATE: For 4 

## purposes o f deciding when the 'Post Maturity Rate' . . . applies, the term 'maturity ' means the fol lowing: . . . (3) in all other cases, the date of the last scheduled payment of principal or the date you accelerate payment on the note, whichever is earlier."

-2- executed by Tarkio to FBIT’s predecessor-in-inte rest. The decision of the District Court, affirming the decision of the Bankruptcy Court, limit s 2 3 FBIT’s recovery to the twelve percent rate of in terest. FBIT appeals. We affirm.

I.

Tarkio Co llege executed a promissory note in the amount of $900,000

sec ured by a Deed of Trust in favor of First Bank of Butler on June 29 , 1990. Tarkio further guaranteed the note by granting First Bank a securit y interest in, among other property and intangible s, all claims or potential claims against third parties--one of which was an ultimately successfu l malpractice claim against the accounting firm of Deloitte and Touche.

Th e promissory note provided for repayment of the loan in twent y qua rterlyinstallments beginning on October 1, 1990, and for accrual o f interest on the unpaid balance of the loan at twelve percent per year. Th e note furth er provided that it would mature on July 1, 1995, or on a n earlier date if Tarkio defaulted and First Bank thereafter elected t o accelerate the note. Default under the note included failure to remit a qua rterlyinstallment payment on time or in the full amount due. An y unpaid balance remaining under the note after th e maturity date of July 1, 1995, or after acceleration of the loan by First Bank would accrue interes t at a "post-maturity rate” of sixteen percent per year. 4

## -3- Tarkio fa iled to make the quarterly payment due on January 1, 1991. By letter dated May 1 4, 1991, First Bank informed Tarkio's president that it considered the loan in default:

This is to advise you, for the college, that First Bank deems Tarkio College in defaul t of its promissory note to First Bank with respect to the referenced loan transaction. Accordingly First Bank requests Tarkio College to now come forward within th e next ten (10) days with full payment of the unpai d principal, $862,396.39, and unpaid and accrued interest o f $38,793.70 as of this day, 05/14/91. Interest is accruing at a rate of $283.528 per day.

Three days later, on May 17, 1991, Tarkio filed its Chapter 11 bankruptcy petition. First Bank filed its proof of claim with the bankruptcy court

on Septemb er 20, 1991. On November 13, 1991, Tarkio filed a Plan o f Liquidation requestin g leave to liquidate its assets and use the proceeds to pay its creditors. First Bank Investors' Trust, the appellant, acquire d Tar kio's note from First Bank in September 1992, thereby becoming Firs t Bank's successor-in-interest on the note. Pursuant to Tarkio's liquidatio n plan approved by the Bankruptcy Court and to an order lifting the automati c stayprovisions of 11 U.S.C. § 362(a) (1994), Tarkio liquidated real and personal property that was subject to FBIT's lien and paid the resulting proceeds over to FBIT in partial satisfaction of the note. In Januar y 1996, during the pendency of the bankruptcy proceedings, Tarkio reached a settlement with Deloitte and Touche of Tarkio' s malpractice claim. As a result of this settlement, Tarkio receive d approximately$3.5 million that was immediately available for payment to its creditors. Pursuant to the security agreement

## Under the Bankruptcy Code, an oversecured creditor (one whose secured claim 5 

## is secured by property with a value in excess of the amount of the claim) is entitled to interest on the claim and "reasonable fees, costs, or charges provided for under th e agreement" between the parties. 11 U.S.C. § 506(b) (1994).
-4- granting FBIT (as First Bank's successor-in-interest) a security interes t in the malpractice action, FBIT, which originally appeared to be a n undersecured creditor, became an oversecured creditor. 5

On Feb ruary 20, 1996, shortly after receipt of the settlement funds, Tarkio filed a mot ion with the Bankruptcy Court seeking to pay in full the

am ount owed to FBIT on the note as of January 8, 1996. Basing it s calculations on documents prepared by FBIT over the course of the bankru ptcy proceedings and excluding from these sums certain fees and other costs it deemed impermissib le, Tarkio proposed in its motion that it owed a balance of $233,063.53 on the note, including interest calculated at the fixe d yearly rat e of twelve percent or $76.62 per day. FBIT responded to thi s motion by asserting that the post-maturity in terest rate of sixteen percent per year was triggered by FBIT's May 14, 1991, letter to Tarkio's presid ent. Ac cording to FBIT's calculations, the balance due under the note as o f January 8, 1996, was $445,481.62, including interest calculated at the p ostmaturi tyrate of sixteen percent or $195.280 per day. FBIT, as a n oversecured credit or, also asserted claims to payment for certain fees and costs incurred as a result of the bankruptcy proceedings.

The Bankruptcy Court conducted an evidentiary hearing on March 20 , 1996, and admitted into evidence over FBIT's objections certain letters and affidavits that were prepared by FBIT representatives after May 14, 1991, and that calculated the amounts due on the note using the twelve percen t
ra ther than the sixteen percent interest rate. Tarkio claimed that i t relied on these do cuments in computing the total amount due under the note and that these documents evidenced FBIT's bel ief that the note had not been accelerated. The Bankruptcy Court granted in part Tarkio's motion to pay FBIT's

## FBIT does not challenge on appeal the calculation of fees and costs. 6



## M issouri courts have not addressed specifically the question of whether a 7 

## determinati onthat a creditor's actions do or do not qualify as an unequivoca l manifestation of the intent to exercise an o ption to accelerate is a question of law to be reviewed de novo or a finding of fact to be reviewed for clear error. Beca use, however, the question presented is essentially a question of contract interpretation, we agree with the Distr ict Court that the Supreme Court of Missouri would take the position tha t whether a cr editor's notice of default is ambiguous as it relates to acceleration is a question of law to be reviewed de novo. See Blackman v. Blackman , 767 S.W.2d 54, 59 (Mo. Ct. App. 1989).
-5- claimin full, finding that the May 14, 1991, letter failed to accelerate the no te. The Bankruptcy Court also granted in part FBIT's motion fo r payment of certain fees and costs. The District Court affirmed and FBI T 6 appeals.

On appeal, FBIT argues that the B ankruptcy Court erred (1) in finding that the May 14, 1991, letter failed to accel erate the promissory note; (2) in ruling that the letters and affidavits offered by Tarkio in support of its claim that the twelve percent interest rate applies were admissible; and (3) in failing to consider FBIT’s claim that the post-maturity interest rate of sixteen percent should apply to the outstanding balance due after th e note's stated maturity date of July 1, 1995. "In bankruptcy cases, thi s court sits as a second court of review and applies the same standards as the district court." Southern Technical College, Inc. v. Hood , 89 F.3d 1381, 1383 (8th Cir. 1996). II.

FBIT first argues that the Bankru ptcy Court erred in finding that the promissory note was not accelerated by the le tter from First Bank dated May 14, 1991. FBIT asserts that this letter effectively accelerated th e maturity date of t he note and triggered the default post-maturity interest rate of sixteen pe rcent per year effective on May 24, 1991. We review the Bankruptcy Court's determination of this stat e-law issue de novo, and agree that the May 14, 1991, letter was insufficient to effectuate acceleration. 7

## -6- Under Missouri law, a debtor's failure to pay an obligation on the due date does not automatically accelerate the entire debt, regardless of the existenc e of an acceleration clause in the agreement. See Capital Cit y Motors, Inc. v. Thomas W. Garland, Inc. , 363 S.W.2d 575, 578 (Mo. 1962)

. An acceleration clause does nothing more than provide a creditor with the option to treat the entire debt as immediately due. See id. Exercisin g that option requires that the creditor perform some unequivocal , affirmative, overt act evidencing its intent to accelerate payment of the debt. See Don Anderson Enters., Inc. v. Entertainment Enters., Inc. , 589 S.W.2d 70, 72 (Mo. Ct. App. 1979); Spires v. Lawless , 493 S.W.2d 65, 73 (Mo. Ct. App. 1973). Furthermore, a declaration o f intent to accelerate must be followed by some affirmative action toward enforcing the creditor's decl ared intent to accelerate. See Spires , 493 S.W.2d at 73. Missouri court s require particularity in effectuating acceleration because "the accelera tion of the maturity of an installment note is a harsh remedy." Morris v

. Grange r , 675 S.W.2d 15, 17 (Mo. Ct. App. 1984) (construing due on sal e acceleratio n clause). "A right to accelerate . . . should be clear an d unequivoca l, and if there is a reasonable doubt as to the meaning of th e terms employed preference should be given to the construction which wil l . . . prevent acceleration of maturity." Id.

We a gree with the Bankruptcy Court that First Bank's May 14, 1991 , letter was ambiguous and, therefore, was not a "clear and unequivocal " statement of the b ank's intent to accelerate the loan. First Bank applied the co ntractual interest rate of twelve percent in computing the amount s noted in its May 14, 1991, letter as immediately due and payable. Th e letter did not state clearly when, if ever, t he post-maturity interest rate of sixteen percent would apply to the outstanding balance of the loan. In fact, First Bank failed to refer to its contractual option to assert th e post-maturity inte rest rate, the imminent imposition of the post- maturity interest rate after the contractually-identified incident of default, or the date such applicability was effective. Because First Bank specificall y calculated the amounts due under the note using the contractual twelve

## -7-

pe rcent interest rate and neglected to assert its right to the defaul t inte rest rate of sixteen percent effective May 24, 1991, or sometim e the reafter, the letter was ambiguous and did not comply with Missouri' s requirement that t he harsh remedy of acceleration be effectuated only by a clear, unequivocal, and affirmative act evide ncing an intent to accelerate. Furthermore, because the May 14, 1991, letter did not operate to accelerate the mat urity of Tarkio's note effective May 24, 1991, and because th e automatic stay of 11 U.S.C. § 362(a)(6) (applicable upon Tarkio's May 17, 1991 , petition for bankruptcy protection) prevented FBIT from thereafte r taking any affirma tive action to accelerate maturity of the note, the note has never been accelerated. The Bankruptcy C ourt did not err in concluding that First Bank's ambiguous letter failed to effectuate acceleration o f Tarkio's debt.

III. FBIT nex t argues that the Bankruptcy Court erred in admitting int o evidence certain documents prepared by representatives of FBIT. Thes e documents tend to support Tarkio's claim that the promissory note was never accelerated and th at the twelve percent interest rate therefore applies to the outstanding balance of the loan. FBIT cl aims that the Bankruptcy Court imprope rlyconsidered this parol evidence in construing the unambiguou s terms of the promissory note. Tarkio, on the other hand, claims that the Bankruptcy Court admitted these documents to determine whether the ambig uous May14, 1991, letter accelerated the note and triggered the post-maturity intere st rate. FBIT specifically finds error with the admission of a Februar y9, 1993, letter to Tarkio from FBIT's attorney itemizing th e various payments made by Tarkio from December 30, 1990, to February 5, 1 993, and calculating the outstanding balance due u nder the note over this period using the twelve percent interest rate. FBIT also objects to the admission of an affidavit pr epared by a member of FBIT’s board of trustees and filed with t he Bankruptcy Court that calculates the obligations owed by Tarki o fr omFebruary 1, 1991, through August 24, 1993, using a twelve percen t interest

## -8-

rate. We review the Bankruptcy Court's decision to admit evidence for a buse of discretion. Justice v. Carter , 972 F.2d 951, 956 (8th Cir. 1992).

Und er Missouri law, extrinsic evidence is inadmissible to vary o r contradict the terms of an unambiguous and complete written instrument. See Norden v. Friedman , 756 S.W.2d 158, 163 (Mo. 1988) (en banc). Extrinsi c evidence is admissible, however, to assist in the interpretation of a n ambiguous writing. See Blackman v. Blackman , 767 S.W.2d 54, 59 (Mo. Ct

. App. 1989). The Bankruptcy Court, having det ermined that the May 14, 1991, letter was ambiguous, admitted this evidence as an aid to resolution of the letter’s ambiguity, i.e., whether the letter effectively exercised FBIT' s option to accelerate the maturity of the note. The Bankruptcy Cour t obse rved that, despite FBIT's assertions that the post-maturity interes t rate was triggered by the May 14, 1991, letter, FBIT repeatedly utilizedthe twelve percent interest rate in these documents purportedly calculatin g Tarkio's remaining debt balance. Because we agree, as previously mentio ned, th at the May 14, 1991, letter was ambiguous and was not a clear an d uneq uivocal manifestation of FBIT's intent to accelerate, the Bankruptc y Court properly admitted these documents to assist in interpreting th e letter's meaning. We find no abuse of discre tion in the Bankruptcy Court's admission of this extrinsic evidence to resolve the ambiguity inherent in the May 14, 1991, letter.

IV. Finally, FBIT argues that if it is not entitled to interest at th e sixteen percent post-maturity rate from the alleged acceleration date of May 24, 1991, i t is entitled to such interest from July 1, 1995, the state d maturity date of the promissory note. The Ba nkruptcy Court did not address this arg ument, and the District Court concluded that the claim wa s foreclosed on appeal due to FBIT's failure to raise it during the bankru ptcy proceedings. As a general rule, we will not consider issues not presented to the bankruptcy court in the first instance. See Pester Ref. Co. v

. Mapco Gas Prods., Inc. ( In re Pester Ref. Co. ), 845 F.2d 1476, 1486 (8t h Cir. 1988); Hofer v. Merchants

## -9-

Sta te Bank , 823 F.2d 271, 272 (8th Cir. 1987) (per curiam) (noting tha t issue would not be considered on appeal where debtor did not present issue to bankruptcy court by complaint or by motion to reconsider and did no t raise issue in des ignation of issues appealed to district court). We may, however, consider an issue for the first time on appeal "when the argument involves a purely legal issue in which no additional evidence or argument would affect the outcome of the case," Universal Title Ins. Co. v. United States , 942 F.2d 1311, 1314-15 (8th Cir. 1991 ), or where manifest injustice might otherwise result, see Singleton v. Wulff , 428 U.S. 106, 121 (1976).

In its objection filed with the Bankruptcy Court to Tarkio's motio n to mak e full payment of amounts due under the promissory note, FBI T repeatedly asserted that it was entitled to interest at the post-maturity rate as a result of Tarkio's default under th e terms of the note and FBIT's subsequent acceler ation of the note. Missing from this motion (filed with the Bankruptcy Court on March 8, 1996--well a fter the maturity date of July 1, 1995), was any assertion that FBIT was entitled to the post-maturit y interest rate as of July 1, 1995. See, e.g. , Objection to Motion at 2 ( "The Note provides for post-maturity interest of sixteen percent per annum and

. . . defines maturity as occurring upon acceleration of th e indebtedness. . .”); id. at 6 ("The Note was accelerated due to the default of Debtor."). During the bankruptcy proceeding, FBIT rested entirely onits argument that the May 14, 1991, letter effect ively accelerated the note and triggered the post-maturity interest rate as of May 24, 1991. Se e Transcript, March 20, 1996, at 8 (opening statement by attorney for FBIT) ("I t’s our contention that there is a 16 percent post-maturity rate tha t applied from May the 24th, 1991, forward, tha t it was an agreed- upon rate, [and] that it was reasonable . . ."). After careful review of the record befor e the Bankruptcy Court, we conclude that the issue of FBIT' s entitlement to the post-maturity interest rate as of July 1, 1995, was not adequately raised. FBIT a sserts that, because it attached a copy of the promissory note to its proof of cl aim filed with the Bankruptcy Court and because Tarkio's witness at the

## -10-

bankruptcy hearing testified that the note, on its face, provided for a July 1, 1995, maturity date, this claim was raised before the Bankruptcy Court. We disagree. As we stated above, FBIT's moti on before the Bankruptcy Court asserted only a cl aim to post- maturity interest based on Tarkio’s default and the purported acceleration notice of May 14, 1991, not a claim to postmaturityinterest based on the maturity of the note on July 1, 1995. The witness's testimon y during the bankruptcy hearing that the promissory note specified a July 1, 1995, maturity date was insufficient to raise this i ssue before the Bankruptcy Court. It is not the d uty of a trial court to ferret out and consider claims that have not expressly been asserted by th e putative claimant.

Furthermore, consideration of FBIT's new claim would raise factua l issues not fully d eveloped in the record before the Bankruptcy Court. The record is insufficient to determine whether F BIT, which repeatedly asserted onl ythe applicability of the twelve percent interest rate in document s addr essed to Tarkio, effectively waived enforcement of the post-maturit y interest rate effective July 1, 1995. Similarly, the record has not been developed with res pect to the reasonableness of the post-maturity interest rate of sixteen percent under 11 U.S.C. §506(b). Likewise, we canno t conclude that refusal to consider this claim for the first time on appeal will result in manifest injustice, particular ly since, in spite of a number of opportunities to raise this claim before the Bankruptcy Court, FBI T neglected to do so . Instead, FBIT pursued only its claim that the sixteen percent rate applied effective May 14, 1991, as a result of Tarkio’ s default. The matu rity date of July 1, 1995, passed during the pendency of the bankruptcy proceedings, and FBIT nonetheless neglected to assert tha t it was entitled to the post-maturity interest rate as a result of the no te’s maturity. We conc lude that because FBIT failed to raise this claim before the Bankru ptcy Court, it is barred from raising it for the first time o n appeal.

## -11- V.

For t he foregoing reasons, we affirm the judgment of the Distric t Court affirming the judgment of the Bankruptcy Court.

A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT