Arvest Bank v. Empire Bank

United States Bankruptcy Appellate Panel
For the Eighth Circuit
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No. 13-6014
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In re: Russell Lee Cook, Formerly doing business as RWCK, LLC, Formerly
doing business as RWCK Developments, LLC, Formerly doing business as
Russell Cook Construction, LLC, Formerly doing business as RWCK
Construction, LLC, Formerly doing business as RWCK Quarry, LLC, Formerly
doing business as High Mountain Whitetails, LLC, Formerly doing business as
Tuscany on the Lakes, LLC, Formerly doing business as The TanStone Group,
LLC, Formerly doing business as Cook-Patch Partn, Formerly doing business as
Gobblers Nob RE, LLC, Formerly doing business as Table Rock Properties, LLC;
Wanda Faye Cook, Formerly doing business as RWCK, LLC, Formerly doing
business as RWCK Developments, LLC, Formerly doing business as Russell Cook
Construction, LLC, Formerly doing business as RWCK Construction, LLC,
Formerly doing business as RWCK Quarry, LLC, Formerly doing business as
High Mountain Whitetails, LLC, Formerly doing business as Tuscany on the
Lakes, LLC, Formerly doing business as The TanStone Group, LLC, Formerly
doing business as Cook-Patch Partn, Formerly doing business as Gobblers Nob
RE, LLC, Formerly doing business as Table Rock Properties, LLC
lllllllllllllllllllllDebtors
------------------------------
Arvest Bank
lllllllllllllllllllll Plaintiff - Appellee
v.
Russell Lee Cook; Wanda Faye Cook; Russell Lee Cook, as Trustee of the Russell
L. Cook Revocable Trust; Wanda Faye Cook, as Trustee of the Wanda F. Cook
Revocable Trust
lllllllllllllllllllll Defendants
Empire Bank
lllllllllllllllllllll Defendant - Appellant
------------------------------
Russell Lee Cook; Wanda Faye Cook
lllllllllllllllllllllCross Claimants - Appellees
v.
Empire Bank
lllllllllllllllllllllCross Defendant - Appellant
____________
Appeal from United States Bankruptcy Court
for the Western District of Missouri - Springfield
____________
Submitted: November 19, 2013
Filed: January 9, 2014
____________
Before SALADINO, NAIL and SHODEEN, Bankruptcy Judges.
____________
Saladino, Bankruptcy Judge.
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Empire Bank appeals from a March 14, 2013, order and judgment of the
bankruptcy court declaring that Arvest Bank’s judicial lien is superior to the liens
asserted by Empire Bank and directing judgment in favor of Debtors, Russell L. and
Wanda F. Cook, on their preferential transfer claim against Empire Bank. We have
jurisdiction over this appeal from the final order of the bankruptcy court. See 28
U.S.C. § 158(b). For the reasons set forth below, we reverse and remand for further
proceedings in the bankruptcy court.
FACTUAL BACKGROUND
The pertinent facts are uncontroverted and many are set forth in a stipulation
filed with the bankruptcy court. In short, this is a dispute between Empire Bank1 and
Arvest Bank over the priority of their liens on property owned by Mr. and Mrs.
Cook.2 Mr. and Mrs. Cook were engaged in the business of real estate development
and condominium construction, and owned interests in various entities, including
RWCK, LLC (“RWCK”) and Table Rock Properties, LLC (“Table Rock”). Together
with their entities, Mr. and Mrs. Cook had lending relationships with both Empire
Bank and Arvest Bank.
Judgment Liens of Empire Bank and Arvest Bank.
At all relevant times, Mr. and Mrs. Cook owned real property located in Taney
County, Missouri, consisting of 809.19 acres, more or less. They also owned a smaller
1
Empire Bank is the successor-in-interest to Citizens National Bank.
2
For ease of reference, Mr. and Mrs. Cook shall mean Russell L. Cook,
individually and as trustee of the Russell L. Cook Revocable Trust dated December
13, 1995, as amended and completely restated on October 30, 2002, and Wanda F.
Cook, individually and as trustee of the Wanda F. Cook Revocable Trust dated
December 13, 1995, as amended and completely restated on October 30, 2002.
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three acre parcel in the same county. On June 19, 2007, Mr. and Mrs. Cook, along
with RWCK and other entities, each executed and delivered a guaranty to Empire
Bank, under the terms of which they guaranteed to Empire Bank the payment and
performance of each and every debt, liability, and obligation of every type and
description which Table Rock may owe to Empire Bank. Each guaranty states that it
is unsecured.
On or about August 30, 2007, Table Rock executed a $315,000.00 promissory
note in favor of Empire Bank, which note was secured by a deed of trust recorded in
Greene County, Missouri. On November 8, 2007, Table Rock executed a promissory
note in favor of Empire Bank in the amount of $4,200,000.00, which note was also
secured by a deed of trust recorded in Greene County, Missouri. Table Rock defaulted
on its promissory notes, and Empire Bank foreclosed on both of the Table Rock deeds
of trust. Empire Bank then sued each of the guarantors for deficiency judgments on
both of the Table Rock notes. The Greene County litigation resulted in a confession
of judgment executed by Table Rock, RWCK, and Mr. and Mrs. Cook on September
9, 2011. Empire Bank filed that confession of judgment in the circuit clerk’s office
in Taney County even though it had not yet been entered as a judgment signed by a
judge. On February 14, 2012, the Greene County Circuit Court accepted the
confession and entered a signed judgment for Empire Bank against Table Rock,
RWCK, and Mr. and Mrs. Cook in the amount of $886,552.64 on Count I and
$37,677.36 on Count II, plus interest. A copy of the Greene County judgment was
filed in Taney County on February 16, 2012.
After recording its Greene County judgment in Taney County, Empire Bank
began efforts to execute on its judgment against Mr. and Mrs. Cook’s real estate in
Taney County. Before selling the property upon execution, Empire Bank reached a
settlement with Mr. and Mrs. Cook. On May 19, 2012, in full satisfaction of its
judgment, Empire Bank received from Mr. and Mrs. Cook an assignment of two
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promissory notes receivable held by them, one having a value of $517,200.17 and the
other having a value of $617,533.45.
In the meantime, on April 14, 2010, Arvest Bank commenced a proceeding in
the Circuit Court of Taney County, Missouri, against Mr. and Mrs. Cook and various
other individuals and entities, including RWCK, for liability on certain promissory
notes and guaranty agreements. On December 6, 2011, the Circuit Court of Taney
County entered judgment in favor of Arvest Bank against Mr. and Mrs. Cook,
RWCK, and others in the amount of $5,256,296.27, plus interest and attorney fees.
Empire Bank Deed of Trust.
Empire Bank is the lender/grantee of a deed of trust granted by Mr. and Mrs.
Cook dated October 11, 2007, and recorded on October 16, 2007, in Taney County,
Missouri. The deed of trust encumbers approximately 120 acres which are part of the
809.19 acre parcel owned by Mr. and Mrs. Cook in Taney County, Missouri. Among
other provisions, the deed of trust provides as follows:
- Paragraph 2 states that the deed of trust is given “for good and valuable
consideration, the receipt and sufficiency of which is acknowledged, and to secure
the Secured Debt (defined below) . . . .”
- Paragraph 3 states that the total principal amount secured “shall not
exceed $375,000.00.”
- Paragraph 4 defines the term “Secured Debt” as follows:
A. Debt incurred under the terms of all promissory
note(s), contract(s), guaranty(ies) or other evidence
of debt described below and all their extensions,
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renewals, modifications or substitutions. (When
referencing the debts below it is suggested that you
include items such as borrowers’ names, note
amounts, interest rates, maturity dates, etc.).
NOTE DATED 10-11-2007 IN THE PRINCIPAL
AMOUNT OF $375,000.00 EXECUTED BY
RWCK, LLC
: Line of Credit. The Secured Debt includes a
revolving line of credit provision. Although the
Secured Debt may be reduced to a zero balance, this
Security Instrument will remain in effect until
released.
...
B. All future advances from Lender to Grantor3 or other
future obligations of Grantor to Lender under any
promissory note, contract, guaranty, or other
evidence of debt existing now or executed after this
Security Instrument whether or not this Security
Instrument is specifically referenced. . . . All future
advances and other future obligations are secured by
this Security Instrument even though all or part may
not yet be advanced. All future advances and other
future obligations are secured as if made on the date
of this Security Instrument. . . .
C. All obligations Grantor owes to Lender, which now
exist or may later arise, to the extent not prohibited
by law, including, but not limited to, liabilities for
overdrafts relating to any deposit account agreement
between Grantor and lender.
...
This Security Instrument will not secure any other debt if
Lender fails to give any required notice of the right of
rescission.
3
As used in the deed of trust, “Grantor” is a reference to Mr. and Mrs. Cook,
in their capacities as trustees of their trusts which owned the pledged real estate.
“Lender” is Empire Bank.
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Despite the reference in the deed of trust to a “NOTE DATED 10-11-2007 IN
THE PRINCIPAL AMOUNT OF $375,000.00 EXECUTED BY RWCK, LLC[,]”
neither the original nor an executed copy of such a note was offered as evidence. An
unexecuted copy of the note and an unexecuted copy of a line of credit agreement
were received into evidence.
Arvest Bank’s Declaratory Judgment Action.
On March 30, 2012, Arvest Bank filed a petition for declaratory judgment in
Taney County, Missouri, against Empire Bank and Mr. and Mrs. Cook. Arvest Bank
asserted that “the Empire Deed of Trust is not supported by valid consideration or any
existing indebtedness and, therefore, is a nullity, void and of no effect whatsoever.”
Arvest Bank also asserted that its judgment lien is prior and superior to Empire
Bank’s judgment lien as against the real property owned by Mr. and Mrs. Cook in
Taney County. Empire Bank and Mr. and Mrs. Cook both filed answers to the petition
for declaratory judgment.
On July 12, 2012, Mr. and Mrs. Cook filed their voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Western District of Missouri. They subsequently removed
Arvest Bank’s declaratory judgment action from the Circuit Court of Taney County,
Missouri, to the United States Bankruptcy Court for the Western District of Missouri.
Mr. and Mrs. Cook obtained leave of the bankruptcy court to file a cross-complaint
against Empire Bank to set aside as a preferential transfer their pre-petition settlement
with Empire Bank involving the transfer of two promissory notes receivable. As part
of that filing, Mr. and Mrs. Cook also sought a declaration that Empire Bank does not
hold a valid deed of trust against their property in Taney County, Missouri.
After a trial and post-trial briefing, the bankruptcy court issued its order
containing findings of fact and conclusions of law. The bankruptcy court found that
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the Empire Bank deed of trust was not valid for lack of consideration. It also held that
even assuming the deed of trust was supported by adequate consideration, it did not
secure the obligations of Mr. and Mrs. Cook pursuant to their guaranties signed in
connection with the Table Rock transactions. The bankruptcy court further found that
Empire Bank’s recording of the confession of judgment in Taney County prior to the
actual entry of judgment by a court was a nullity. Arvest Bank’s judgment was filed
in Taney County, Missouri, prior to the filing in Taney County of the signed Greene
County judgment in favor of Empire Bank and, accordingly, Arvest Bank’s judgment
lien had priority over Empire Bank’s judgment lien. Finally, the bankruptcy court
held that the transfer by Mr. and Mrs. Cook to Empire Bank of their interest in two
promissory notes in exchange for satisfaction of Empire Bank’s judgment was
avoidable as a preferential transfer.
Empire Bank appeals. Empire Bank first asserts that the bankruptcy court erred
in holding the Empire Bank deed of trust invalid for lack of consideration. Empire
Bank also asserts that the bankruptcy court erred in looking outside the four corners
of the Empire Bank deed of trust in finding that, even if it were supported by
consideration, it did not secure Mr. and Mrs. Cook’s guaranty obligations. Finally,
Empire Bank believes that the bankruptcy court erred in its preference analysis when
it treated Empire Bank as wholly unsecured.
STANDARD OF REVIEW
The bankruptcy court’s findings of fact are reviewed for clear error and its
conclusions of law are reviewed de novo. First Nat’l Bank of Olathe v. Pontow, 111
F.3d 604, 609 (8th Cir. 1997) (quoting Miller v. Farmers Home Admin. (In re Miller),
16 F.3d 240, 242 (8th Cir. 1994)). A bankruptcy court’s interpretation of an
unambiguous contract is an issue of law to be reviewed de novo. Sears v. Sears (In
re AFY, Inc.), 463 B.R. 483, 489 (B.A.P. 8th Cir. 2012). However, interpretation of
an ambiguous contract is an issue of fact which is reviewed for clear error. Papio
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Keno Club, Inc. v. City of Papillion (In re Papio Keno Club, Inc.), 262 F.3d 725, 731
(8th Cir. 2001).
DISCUSSION
Empire Bank first asserts that the bankruptcy court erred in holding the Empire
Bank deed of trust invalid for lack of consideration. The bankruptcy court gave two
reasons for its holding – Empire Bank did not produce an executed copy of its line
of credit note, and the line of credit was never used, so there was never a balance due.
However, under the unique circumstances of this case, Empire Bank was not
required to produce an executed note, so its failure to do so does not mean the note
was never executed or that it does not exist. Arvest Bank and Mr. and Mrs. Cook
made the allegations in their pleadings that the deed of trust was not enforceable due
to a lack of consideration; therefore, the burden was on them to prove it by a
preponderance of the evidence. Cobble v. Garrison, 219 S.W.2d 393, 394 (Mo.
1949); Bitzenburg v. Bitzenburg, 226 S.W.2d 1017, 1022 (Mo. 1950). They failed to
do so.
The pleadings allege a lack of consideration for the Empire Bank deed of trust,
but those allegations appear to be based on the lack of any loan balance due to Empire
Bank. Importantly, the pleadings do not allege that the underlying promissory note
was never executed or does not exist. Further, at no time did anyone testify that the
note does not exist or was not properly executed by RWCK. Mr. and Mrs. Cook both
testified at trial and never made such a statement. In fact, Mr. Cook was asked: “Now,
did there come a time in which RWCK entered into a loan agreement with [Empire
Bank]?” He responded with “We did.” Regardless, Mr. Cook acknowledged that he
and Mrs. Cook both signed the deed of trust. That document expressly states that it
was given “for good and valuable consideration” and to secure a “NOTE DATED
10-11-2007 IN THE PRINCIPAL AMOUNT OF $375,000.00 EXECUTED BY
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RWCK, LLC.” The deed of trust states that it was for valuable consideration and that
there is an executed note. There is no evidence to the contrary. See, Cobble v.
Garrison, 219 S.W.2d 393, 394 (Mo. 1949) (stating: “A mortgage imports or implies
a consideration, and the introduction of the instrument into evidence constitutes prima
facie proof it was given by the mortgagor or grantor for a consideration moving to
him. Plaintiffs, in their attack on the validity of the deed of trust based on the ground
of want of consideration, had the burden of proof.”).
Further, requiring a balance due on a line of credit before the deed of trust
securing the line becomes valid would defeat the very essence of a secured line of
credit. The promise to loan money under a line of credit is itself consideration,
regardless of whether the line is ever used. Consideration exists “where there is a
detriment to the promisee or a benefit to the promisor.” Kells v. Missouri Mountain
Properties, Inc., 247 S.W.3d 79, 84 (Mo. App. 2008). In fact, Missouri has a statutory
scheme that recognizes the validity of future advance deeds of trust, providing in part:
Neither the existence nor priority of a security instrument
otherwise complying with the provisions of this section
shall be adversely affected if at any time on or after the
date of such security instrument there are no obligations
then secured . . . or the obligations secured by the security
instrument are reduced to zero.
Mo. Rev. Stat. § 443.055.2 (2000). Therefore, Arvest Bank and Mr. and Mrs. Cook
failed to meet their burden of proof, and the bankruptcy court erred in holding that
the Empire Bank deed of trust is invalid for a lack of consideration.
Empire Bank also asserts the bankruptcy court erred in holding that, even
assuming the deed of trust was supported by adequate consideration, it did not secure
the obligations of Mr. and Mrs. Cook pursuant to their guaranties signed in
connection with the Table Rock transactions. Empire Bank’s argument is
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straightforward. The deed of trust defines “secured debt” to include all “future
obligations of Grantor to Lender” and “all obligations Grantor owes to Lender, which
now exist or may later arise . . . .” Such cross-collateralization provisions are
sometimes referred to as “dragnet clauses.” The bankruptcy court found a latent
ambiguity when the language of the Empire Bank deed of trust was considered along
with the surrounding circumstances and determined that the guaranty obligations
were not secured by the Empire Bank deed of trust.
As a general rule, dragnet clauses are not favored and are strictly construed.
See, e.g., United States v. Fahrenkamp, 312 F.2d 627, 630 (8th Cir. 1963) (applying
Arkansas law); Bank of Kansas v. Nelson Music Co., 949 F.2d 321, 323 n.3 (10th Cir.
1991) (applying Kansas law); United States v. American Nat. Bank of Jacksonville,
255 F.2d 504, 507 (5th Cir. 1958) (applying Florida law); First Trust & Sav. Bank v.
Manning, 311 N.W.2d 285, 299 (Iowa 1981). Courts in Missouri, however, “will
enforce a well drafted, properly perfected ‘dragnet’ clause.” In re Phillips, 161 B.R.
824, 827 (Bankr. W.D. Mo 1993). Specifically:
Missouri, perhaps because of its more commercial
orientation and less debtor orientated background, has not
engaged in such anti dragnet comments. As early as 1933,
the Missouri Supreme Court stated that the words: “any
other obligation of the undersigned to the payee herein,
now existing or that may hereafter arise” created a valid
provision which made the collateral pledged on one loan,
collateral for other loans between the parties. See Russell
et al. v. Empire Storage & Ice Co., 332 Mo. 707, 59
S.W.2d 1061 (1933), l.c. 1070. Moreover, the Eighth
Circuit Court of Appeals in Zuke v. St. Johns Community
Bank, 387 F.2d 118 (8th Cir. 1968) affirmed the Eastern
District of Missouri in holding that numismatic coins
pledged for a loan were also collateral for a checking
account overdraft when the security agreement provided
that said collateral secured the payment of all other
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liabilities owing by the bankrupt to the bank. See In re
Midas Coin Co., 264 F. Supp. 193 (E.D. Mo. 1967) for the
district court opinion. Thus, the Missouri courts have been
more hospitable to “dragnet clauses” than neighboring
states and are more likely to enforce them.
Id. at 826-27 (footnote omitted). See also Diamond Bank v. Carter (In re Carter), 203
B.R. 697, 704 (Bankr. W.D. Mo 1996) (discussing after-acquired property and future
advance clauses, holding “the law in Missouri is very clear that such clauses are now
enforceable provided the intention of the parties to create such an interest is readily
apparent from the language of the document.”).
There seems to be agreement that the cross-collateralization clauses in the
Empire Bank deed of trust are not patently ambiguous – the deed of trust clearly
states that it secures “[a]ll . . . other future obligations of Grantor to Lender under any
promissory note, contract, guaranty, or other evidence of debt existing now or
executed after this Security Instrument whether or not this Security Instrument is
specifically referenced” and “[a]ll obligations Grantor owes to Lender, which now
exist or may later arise.” Those clauses may be broad, but they certainly are not
patently ambiguous. The question is whether the bankruptcy court was correct, as a
matter of law, in finding a latent ambiguity.
The Supreme Court of Missouri discussed the rules of contract construction
applicable to loan documents in the case of Royal Banks of Missouri v. Fridkin, 819
S.W.2d 359 (Mo. 1991) (en banc). Specifically, the Missouri Supreme Court stated:
The rules of construction applicable to a guaranty are
the same as applied to other contracts. Industrial Bank &
Trust Co. v. Hesselberg, 195 S.W.2d 470, 476 (Mo. 1946);
Standard Meat Co. v. Taco Kid of Springfield, Inc., 554
S.W.2d 592, 595 (Mo. App. 1977). The parol evidence rule
bars extrinsic evidence, unless an integrated contract is
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ambiguous. Commerce Trust Co. v. Watts, 360 Mo. 971,
231 S.W.2d 817, 820 (Mo. 1950). A determination as to
whether a guaranty is ambiguous is a question of law to be
decided by the court. Jim Carlson Construction, Inc. v.
Bailey, 769 S.W.2d 480, 482 (Mo. App. 1989).
Ambiguities in written instruments may be of two
kinds: (1) patent, arising upon the face of the documents,
and (2) latent. Busch & Latta Painting Corp. v. State
Highway Commission, 597 S.W.2d 189, 197 (Mo. App.
1980). A “latent ambiguity” arises where a writing on its
face appears clear and unambiguous, but some collateral
matter makes the meaning uncertain. Boswell v. Steel
Haulers, Inc., 670 S.W.2d 906, 912 (Mo. App. 1984).
Where ambiguity exists – latent or patent – the
cardinal principle is to determine the intent of the parties.
Id. at 913. In order to determine the intent of the parties a
court will consider the entire contract, subsidiary
agreements, the relationship of the parties, the subject
matter of the contract, the facts and circumstances
surrounding the execution of the contract, the practical
construction the parties themselves have placed on the
contract by their acts and deeds, and other external
circumstances that cast light on the intent of the parties.
Busch & Latta Painting Corp. v. State Highway
Commission, supra at 198.
Id. at 361-62. See also Global Network Techs. v. Reg’l Airport Auth. of Louisville and
Jefferson County, 122 F.3d 661, 665 (8th Cir. 1997) (finding latent ambiguity under
Missouri law and using parol evidence to determine whether contract had been
performed). Stated another way, “a latent ambiguity exists when a writing on its face
is unambiguous but surrounding circumstances make it capable of multiple
interpretations.” AWM Real Estate Fund I, LLC v. Jefferson Bank of Mo., Case No.
09-4149-CV-C-NKL, 2010 WL 3782133 at *5 (W.D. Mo. Sept. 22, 2010) (enforcing
a dragnet clause in a deed of trust). Also, “[a] latent ambiguity may be one in which
the description of the property is clear upon the face of the instrument, but it turns out
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that there is more than one estate to which the description applies; or it may be one
where the property is imperfectly or in some respects erroneously described, so as not
to refer with precision to any particular object.” University City, Mo. v. Home Fire
& Marine Ins. Co., 114 F.2d 288, 295-96 (8th Cir. 1940) (citing Patch v. White, 117
U.S. 210, 217 (1886)).
The bankruptcy court held that a latent ambiguity existed because, when
considered in conjunction with the language of the guaranty documents and the
circumstances surrounding the dealings among the parties, the Empire Bank deed of
trust was subject to more than one interpretation. The bankruptcy court’s ambiguity
holding is a conclusion of law that we must review de novo. Jim Carlson
Construction, Inc. v. Bailey, 769 S.W.2d 480, 482 (Mo. App. 1989).
Arvest Bank and Mr. and Mrs. Cook argue that a latent ambiguity exists
because the guaranty documents (upon which the Empire Bank judgment is based)
state that they are “unsecured” and were not modified when the deed of trust was later
signed. We disagree. Certainly, the guaranty documents were unsecured when they
were signed. It was only later that the Empire Bank deed of trust was signed and
secured the guaranty obligations through its cross-collateralization clause. The
language in the deed of trust does not limit its security only to those obligations that
expressly state they are secured by the deed of trust. In fact, it states just the opposite.
In the future advance clause, the deed of trust clearly states that it secures “future
obligations of Grantor to Lender under any promissory note, contract, guaranty, or
other evidence of debt existing now or executed after this Security Instrument
whether or not this Security Instrument is specifically referenced.” (Emphasis added.)
In any event, the “unsecured” language in the guaranty documents was true
when they were executed. The status of the guaranties as unsecured changed when
the deed of trust was signed – extending its security to other debts such as the
guaranties – but that change in the status of the guaranties is not an ambiguity in the
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Empire Bank deed of trust. In the event of conflicting agreement between the same
parties, the later agreement controls. Burlington Northern Railroad Co. v. Chicago
& Northwestern Transportation Co., 851 S.W.2d 28, 31-32 (Mo. App. W.D. 1993)
(citing Dill v. Poindexter Tile Co., 451 S.W.2d 365, 370 (Mo. App. 1970)); Berry v.
Crouse, 376 S.W.2d 107 (Mo. 1964).
Arvest Bank and Mr. and Mrs. Cook also point out that even though the
guaranty obligations pre-dated the deed of trust, they were not specifically listed in
the deed of trust as secured debt. While it is true that there is no specific reference to
the guaranty obligations, the clear purpose of the broad cross-collateralization clause
is to cover all debt with that single security interest, without having to list each debt
separately. It would defeat the clear purpose of the clause to declare the document
ambiguous for failure to specifically identify the debt. Mr. Cook’s testimony that he
was unaware that the deed of trust might secure other obligations also does not make
the language in the deed of trust uncertain or subject to more than one meaning. The
language is what it is, whether he was aware of it or not.
Finally, Arvest Bank and Mr. and Mrs. Cook point out that Empire Bank did
not try to foreclose its deed of trust before executing on its judgment lien and that it
filed its proof of claim as unsecured. Perhaps those facts would be relevant if waiver
or estoppel were issues presented to the court, but they were not. Regardless, the
actions taken or not taken by Empire Bank do not change the actual language of the
deed of trust or its meaning. “Even under the latent ambiguity exception [to the parol
evidence rule], parol or extrinsic evidence is admissible only to explain an ambiguity,
not to change or contradict the language of the written instrument.” Hardin v. Ray,
404 S.W.2d 764, 771 (Mo. Ct. App. 1966) (citations omitted); Campbell v. Dixon,
647 S.W.2d 617, 620-21 (Mo. Ct. App. 1983) (same); Ironite Prods. Co. v. Samuels,
985 S.W.2d 858, 862 (Mo. Ct. App. 1998) (quoting Union Elec. Co. v. Fundways,
Ltd., 886 S.W.2d 169, 171 (Mo. Ct. App. 1994)) (“Parol evidence is not admissible
to prove a condition precedent if the condition varies, negates, or contradicts the
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express terms of the writing.”). The bankruptcy court’s holding that the deed of trust
was not intended to secure any other debt obviously changes or contradicts the clear
language of the instrument. Extrinsic evidence cannot be used to do so.
Accordingly, we agree with Empire Bank that the language used in the deed
of trust – “[a]ll obligations Grantor owes to Lender, which now exist or may later
arise” – is not subject to multiple interpretations or uncertain meaning and is not
latently ambiguous. The language used in the deed of trust is susceptible to only one
interpretation – that the deed of trust is security for all obligations Mr. and Mrs. Cook
owe to Empire Bank.4
The bankruptcy court also found that the Arvest Bank judgment lien has
priority over the Empire Bank judgment lien. Empire Bank did not raise any
assignments of error regarding the judgment lien priority holding. Therefore, that
portion of the bankruptcy court’s holding will not be disturbed. Issues not raised on
appeal are deemed abandoned. Schlehuber v. Fremont Nat’l Bank & Trust Co. (In re
Schlehuber), 489 B.R. 570, 572 n.2 (B.A.P. 8th Cir. 2013). Finally, since we have
determined that the guaranty obligations owed to Empire Bank from the Table Rock
transactions were at least partially secured by the Empire Bank deed of trust prior to
the settlement between Empire and Mr. and Mrs. Cook, the bankruptcy court’s
preference analysis must change accordingly.
CONCLUSION
For the foregoing reasons, we reverse the order and judgment of the bankruptcy
court and remand for further proceedings consistent with this opinion.
______________________________
4
Subject, of course, to the secured debt limit set forth in the deed of trust.
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