Opinion
NOT FOR PUBLICATION
Ordered Submitted Without Oral Argument January 22, 2010,
The parties advised the Panel that they waived oral argument. Order entered January 20, 2010. See Fed.R.Bankr.P. 8012; 9th Cir. BAP R. 8012-1.
Appeal from the United States Bankruptcy Court for the District of Montana. Bk. No. 08-61684-RBK, Adv. No. 09-00037-RBK. Honorable Ralph B. Kirscher, Chief Bankruptcy Judge, Presiding.
Before: PAPPAS, MARKELL and MONTALI, Bankruptcy Judges.
MEMORANDUM
Chapter 11 debtors Douglas A. and Susann E. Saarel (" Saarels") appeal the decision of the bankruptcy court denying their request to quiet title in a commercial property in themselves in an action against creditor OBB Partners V, LLC (" OBB"). We AFFIRM.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1532, and the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
FACTS
The facts were stipulated by the parties.
On May 5, 2005, Saarels obtained a loan from OBB for $1.3 million, secured by a mortgage on six parcels of commercial property owned by the Saarels in Park County, Montana (the " Property").
Saarels and OBB entered into a loan modification agreement on April 10, 2006, in which OBB agreed to release one parcel of the mortgaged property in consideration of a partial paydown of the loan. The agreement and payment reduced the principal balance to $597, 600, and reduced Saarels' monthly payment from $13, 541.67 on the loan to $6, 218.75, effective August 5, 2006. The maturity date for the loan, May 5, 2008, remained unchanged.
Saarels failed to make the monthly installments due November 5 and December 5, 2007. OBB sent Saarels a notice of default. According to the notice, the amount necessary to cure the default was $17, 821.68; OBB set a deadline of January 23, 2008 for Saarels to cure the default.
Saarels did not cure the default by January 23, 2008. Instead, OBB and Saarels negotiated a second loan modification agreement (" the Second Agreement") entered into on January 30, 2008. At the same time, and as contemplated by the Second Agreement, Saarels executed a Nonmerger Deed in Lieu of Foreclosure conveying the Property to OBB that was deposited with Guardian Title Escrow in Livingston, Montana.
The terms of the Second Agreement relevant in this appeal are contained in ¶ 1.1(d), which provides:
(i) If, on or before March 5, 2008, Borrower brings current the Loan through and including the March 5, 2008 installment (namely including but not limited to payment of all monthly installments from and including the November 5, 2008 installments, accrued and unpaid interest, late charges, default interest, and costs and expenses), Lender shall return to Borrower the original of this Nonmerger Deed in Lieu to Borrower within seven (7) days of full payment of the amount to cure. Borrower shall be obligated thereafter to continue to provide payments in accordance with the Loan Documents, e.g., the monthly installment due April 5, 2008, and the balloon payment due May 5, 2008.
The parties stipulated in the bankruptcy court that there was no ambiguity in ¶ 1.1(d)(i).
(ii) If Borrower does not satisfy 1.1(d)(i) above, but provides payment in full of the Loan on or before August 5, 2008, namely including but not limited to full amount of the principal, accrued and unpaid interest, late charges, default interest, and costs and expenses, Lender shall return to Borrower the original of the Nonmerger Deed in Lieu within seven (7) days of full payment.
This provision, ¶ 1.1(d)(ii), as originally approved by the parties on January 30, 2008, stated: " If Borrower provides payment in full . . . ." However, this phrase was modified by joint consent of the parties on February 6, 2008, to read as indicated above, " If Borrower does not satisfy 1.1(d)(i) above, but provides payment in full . . . ."
(iii) If Borrower fails to (a) bring current the Loan through and including the March 5, 2008 installment, and (b) provide payment in full of the Loan on or before August 5, 2008, Lender shall have the right but not the obligation to record the Nonmerger Deed in Lieu immediately thereafter, without further notice to Borrower. In the event Lender records the Nonmerger Deed in Lieu in accordance with this Agreement, Borrower also shall cooperate with Lender to effectuate the full and complete transfer of the Property to Lender, and shall not interfere in any manner with this transfer.
On January 30, 2008, OBB instructed Guardian Title as follows:
Please have the Saarels execute the attached documents and Jim Shires will forward his signed copies. As discussed with Jim, please hold the document until the loan is brought current through the March 5th payment by March 5, 2008, or the loan is paid in full before August 5, 2008, per the Agreement.
Saarels did not make the payment on or before March 5, 2008, as required by the Second Agreement. On April 8, 2008, Saarels requested a statement from OBB of the amount due on the loan for all delinquent payments from November 5, 2007, through March 5, 2008. OBB replied by email on the same date that the total amount was $40, 132.88.
Saarels paid OBB $40, 132.88 on April 11, 2008. This payment did not include the monthly installment due on April 5, 2008, which by the April 11 payment date was in default. Saarels never requested return of the Nonmerger Deed in Lieu, and Guardian Title remained in possession of the deed, after the April 11 payment.
Saarels made no further payments to OBB after April 11, 2008.
The parties stipulated that no one from OBB ever told Saarels that the March 5, 2008 deadline to cure the defaults for the period of November 5, 2007 through March 5, 2008 was waived. Further, the parties stipulated that there was no written agreement modifying the Second Agreement.
Saarels did not pay the loan in full on or before August 5, 2008. OBB recorded the Nonmerger Deed in Lieu on September 18, 2008, effectively transferring title to the Property from Saarels to OBB.
Saarels filed a petition under chapter 11 on December 2, 2008. Saarels commenced an adversary proceeding against OBB on June 15, 2009, seeking to quiet title in the Property in themselves subject to the mortgage of OBB. OBB answered on July 1, 2009, also asserting a counter-claim seeking a declaration by the bankruptcy court that title to the Property vested in OBB upon recording of the Nonmerger Deed in Lieu, and that the Property was not property of the Saarels' bankruptcy estate.
The parties filed a stipulation on August 7, 2009, submitting the issues raised in the adversary proceeding to the bankruptcy court for decision on agreed facts. According to the parties, the legal issues to be decided by the bankruptcy court were:
(a) Was the payment deadline of March 5, 2008, specified in the [Second Agreement], waived by acceptance of the payment of $40, 132.88 by OBB on April 11, 2008, which, in turn, would have required OBB to release the escrowed Nonmerger Deed in Lieu of Foreclosure to Saarels?
(b) Was OBB entitled, pursuant to the terms of the written agreements between OBB and Saarels, to record the Nonmerger Deed in Lieu of Foreclosure because Saarels did not comply with the terms of the [Second Agreement] or should title be quieted in Saarels because OBB improperly recorded the Deed in Lieu of Foreclosure?
(c) Is the real property described in the Nonmerger Deed in Lieu of Foreclosure vested in fee simple title to OBB or is it property of the bankruptcy estate?
OBB and Saarels submitted briefs in support of their positions. Saarels argued that OBB's acceptance of a late payment waived any default in connection with that payment. OBB asserted that the initial payment under the Second Agreement was not timely made, OBB never waived the March 5, 2008 deadline for that payment, Saarels did not pay the loan in full by August 5, 2008, and as a result, OBB was entitled to record the Nonmerger Deed in Lieu of Foreclosure and become the owner of the Property.
The bankruptcy court entered its Memorandum of Decision on September 15, 2009. The court first analyzed the Montana cases on waiver relied upon by Saarels and OBB. Applying that analysis to the stipulated facts, the bankruptcy court reached these conclusions:
- Saarels had not shown that OBB, expressly or by conduct, waived the March 5, 2008 payment deadline. - There was no evidence in the record that either party intended to waive the March 5, 2008 deadline. - Because Saarels failed to make the payment due on March 5, 2008, and then failed to pay off the loan in full by August 5, 2008, OBB was entitled, pursuant to the terms of the written agreements between OBB and Saarels, to record the Nonmerger Deed in Lieu of Foreclosure. When the deed was recorded, the Property vested in fee simple title in OBB.
The bankruptcy court entered a judgment in the adversary proceeding in favor of OBB on September 15, 2009. Saarels filed a timely appeal on September 25, 2009.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § 1334 and 157(b)(2)(A) and (O). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Whether the bankruptcy court erred in ruling that OBB did not waive the March 5, 2008 payment deadline in the Second Agreement.
Saarels identified several other issues concerning the propriety of recording the Nonmerger Deed in Lieu. Saarels' Br. at 1-2. Those issues, however, assume that OBB waived the March 5, 2008 payment deadline. Given our disposition on the waiver issue, below, we need not address issues regarding OBB's recording or failure to return the Nonmerger Deed in Lieu.
STANDARD OF REVIEW
Questions of contract interpretation are reviewed de novo. Ankeny v. Meyer (In re Ankeny), 184 B.R. 64, 68 (9th Cir. BAP 1995); accord Ophus v. Fritz, 2000 MT 251, 301 Mont. 447, 11 P.3d 1192, 1195 (Mont. 2000).
DISCUSSION
Saarels seek to quiet title in the Property, arguing that OBB's acceptance of Saarels' payment on April 11, 2008, after the due date in the Second Agreement, constituted a waiver of any default in connection with that payment, thereby requiring that the Nonmerger Deed in Lieu be delivered to Saarels and not recorded. OBB disagrees, and contends that it did not waive the March 5 deadline for payment; and because Saarels also did not pay the loan in full by August 5, 2008, it was entitled under the Second Agreement to record the Nonmerger Deed in Lieu. On this record, we conclude that the bankruptcy court did not err in its determination that OBB did not waive the default.
In this dispute, the bankruptcy court was charged with interpreting the terms of the parties' contract, the Second Agreement. State law, which in this case is the law of Montana, governs the construction of such contracts. Del Hur, Inc. v. Nat'l Union Fire Ins. Co., 94 F.3d 548 (9th Cir. 1996). The Montana Supreme Court instructs that a court should interpret the language of contractual provisions according to its plain, ordinary meaning. Ophus v. Fritz, 11 P.3d at 1196; Morning Star Enters. v. R.H. Grover, 247 Mont. 105, 805 P.2d 553, 557 (Mont. 1991). When the language of a contract is clear and unambiguous and, as a result, susceptible to only one interpretation, the duty of the court is to enforce the contract as written. Carelli v. Hall, 279 Mont. 202, 926 P.2d 756, 761 (Mont. 1996).
Neither party to this dispute contests that the plain meaning of ¶ 1.1(d)(i) of the Second Agreement is that, if Saarels cured the delinquent payments " on or before March 5, 2008, " OBB would return the Nonmerger Deed in Lieu to Saarels. In other words, in this context, the plain meaning of " on or before" a particular date is that OBB had a right to expect not only that Saarels would perform this term, but that such performance would be accomplished in a timely fashion on or before the March 5 deadline. Indeed, the parties stipulated that there was no ambiguity in this paragraph.
Saarels contend that their tardy payment is nonetheless effective, though, based on the doctrine of waiver. According to their interpretation of that doctrine, the mere fact that OBB accepted their cure payment on April 11, 2008, waived the March 5, 2008 deadline.
Saarels rely on two Montana Supreme Court decisions to support their argument. Neither compels reversal under these facts.
Saarels insist that Ahrens v. Cottle, 271 Mont. 339, 896 P.2d 1127 (Mont. 1995) establishes the proposition that a party's acceptance of a late payment terminates that party's right to accelerate and terminate a contract for deed based upon late payment. However, a careful reading of Ahrens shows that its holding is, at best, of limited utility to Saarels.
In Ahrens, the contract buyers of a house agreed to make the monthly payments due on the sellers' mortgage to the bank. When the buyers became delinquent on bank payments, the sellers served them with a notice of the sellers' intent to terminate the parties' contract by posting it on the back door of the house, despite the contract's requirement for personal service or service by mail. The buyer then tendered the delinquent payments to the bank, which accepted those payments. 896 P.2d at 1129.
The court rejected the sellers' argument that a proper notice of default had been given by seller to the buyers. However, it also held that, under the facts, the bank's acceptance of the late payments waived the contract requirement that buyers make those payments in a timely fashion:
[I]t is irrelevant that the [buyer's] delinquent payments were accepted and retained by [the bank] rather than [the sellers]. What is relevant is the fact that [the buyer] had not been served with notice of default, he made payments to [the bank] in satisfaction of the underlying obligation, and those payments were accepted and retained. Any defaults that may have occurred were cured when [the buyer] brought all payments current.
As can be seen, the Montana court's decision in Ahrens that the sellers had waived timely payments was based upon its conclusion that the sellers had not given the buyers proper notice of default. In this case, Saarels have not argued that they were given inadequate notice of their default. Ahrens therefore does not require that the bankruptcy court's decision be reversed.
Saarels also rely on Boles v. Ler, 222 Mont. 28, 719 P.2d 793 (Mont. 1986). In Boles, a seller sent borrower a notice of his intention to cancel a contract for deed, but then continued to accept several monthly payments after sending the notice. The Montana Supreme Court ruled that the seller's acceptance of the payments waived the seller's right to terminate the contract.
Again, the facts in Boles are clearly distinguishable from those in this appeal, because here no notice of default was sent to Saarels before they made the tardy payment, and, as discussed below, the Montana Supreme Court finds a continuing course of conduct, such as accepting several payments, more indicative of an " unequivocal manner" of a course of conduct. Here, Saarels rely upon OBB's acceptance of a single late payment to demonstrate a waiver.
The bankruptcy court correctly applied the Montana law of waiver. Waiver is the " voluntary and intentional relinquishment of a known right, claim or privilege." Thiel v. Johnson, 219 Mont. 271, 711 P.2d 829, 831 (Mont. 1985) (quoting 28 AM. JUR.2d § 197); Trustees of the Wash.-Idaho-Mont. Carpenters Retirement Trust Fund, et al. v. Galleria P'ship, 239 Mont. 250, 780 P.2d 608, 613 (Mont. 1989). According to Thiel, waiver may be proved by express declarations or by a course of acts and conduct so as to induce the belief that the intention and purpose was to waive. 711 P.2d at 831.
In this case, the parties stipulated that OBB never expressed or declared its intent that the March 5, 2008 deadline for Saarels to cure the defaults for the period of November 5, 2007 through March 5, 2008 was waived. We agree with the bankruptcy court that, based on this record and the stipulation of the parties, there was no express declaration of waiver by OBB. As a result, as the bankruptcy court observed, " Saarel[s] must show that OBB, either through its acts or conduct, waived the March 5, 2008, deadline."
To support an implied waiver, the actor's conduct must be manifested in some " unequivocal manner." Thiel, 711 P.2d at 832. Concerning this requirement, in addition to Boles, the Montana Supreme Court has three times indicated that an unequivocal waiver is demonstrated by a " course of acts and conduct" or, in other words, not isolated incidents. Collection Bureau Servs. v. Morrow, 2004 MT 84, 320 Mont. 478, 87 P.3d 1024, 1028-29 (Mont. 2004) (collection agency that accepted over a period of time several partial payments after making a demand for full payment waived its right to sue for statutory damages); VanDyke Constr. Co. v. Stillwater Mining Co., 2003 MT 279, 317 Mont. 519, 78 P.3d 844, 847 (Mont. 2003) (finding that plaintiff sent five letters over a four-month period that supported arbitration, and deeming that a waiver of plaintiff's right to subsequently object to contract provisions requiring arbitration); Sperry v. Montana St. Univ., 239 Mont. 25, 778 P.2d 895, 898 (Mont. 1989) (university professor who continued to cash checks over a 19-year period waived right to contest dispute over pay).
In finding that there was no course of behavior, acts, or conduct by OBB unequivocally demonstrating an intent to waive timely payment of the March 5 deadline, the bankruptcy court observed:
If Saarel brought the loan current by March 5, 2008, including the March 5, 2008, installment, OBB was to return the Nonmerger Deed in Lieu of Foreclosure to Saarel within 7 days of full payment of the amount to cure. Had the parties intended a waiver of the March 5, 2008, deadline, OBB would have returned the Nonmerger Deed in Lieu of Foreclosure or Saarel would have requested that the Nonmerger Deed in Lieu of Foreclosure be returned. When Saarel made the tardy payment of $40, 132.88 on April 8, 2008, OBB did not return, and Saarel did not request the return of, the Nonmerger Deed in Lieu of Foreclosure. Accordingly, the Court concludes that OBB did not waive the March 5, 2008 deadline. . . .
The [Second Agreement] specifically provides that if Saarel did not timely cure the entire outstanding default by March 5, 2008, Saarel could still prevent losing the land by paying the contract balance in full by August 5, 2008. Indeed, it was not unreasonable for OBB to accept the April 8, 2008, payment with the assumption that Saarel would pay off the loan in its entirety by August 5, 2008. This belief is reflected in the June 28, 2008, emails between [OBB] and Saarel wherein Jim Shires, on behalf of OBB, stated that OBB did not want to record a deed against Saarel's property, but that time was running out. The time that was running out was Saarel's time to payoff the loan by August 5, 2008, given Saarel's failure to timely make the March 5, 2008, payment. In sum, no evidence exists in the record to show that either OBB or Saarel intended to waive the March 5, 2008 deadline in the [Second Agreement].
Memorandum of Decision at 13-14.
We find no error in the bankruptcy court's analysis of the facts. The bankruptcy court correctly held that Saarels did not show that OBB waived the March 5, 2008 payment deadline, and we agree with the court's interpretation of the plain meaning of the terms of the Second Agreement that " because Saarel[s] failed to make the payment due March 5, 2008, and then failed to pay off the loan in full by August 5, 2008, OBB was entitled, pursuant to the terms of the written agreements between OBB and Saarels, to record the Nonmerger Deed in Lieu of Foreclosure." Memorandum of Decision at 14.
Although not specifically discussed by the bankruptcy court, we believe there are other provisions of the Second Agreement which reinforce the foundation for the bankruptcy court's interpretation. In particular, the Second Agreement provides:
SECTION 2. NO OTHER MODIFICATION. Except as expressly provided in this Agreement, all other provisions of the Loan Documents previously executed by the parties in connection with the Loan shall remain in full force and effect.
SECTION 3. WAIVER. The failure of any party at any time to require performance of any provision of this Agreement shall not limit that party's right to enforce the provision, nor shall any waiver of any breach of any provision constitute a waiver of any succeeding breach of that provision or a waiver of that provision itself.
The " Loan Documents" referred to in Section 2 of the Second Agreement include the mortgage securing OBB's loan to Saarels. The mortgage provides, in part, that " [a]ny forbearance by mortgagee in exercising any right or remedy hereunder, or otherwise afforded by applicable law, shall not be a waiver of, or preclude the exercise of any such right or remedy." Mortgage ¶ 9.
The Montana court, in the Galleria P'ship decision cited above, had an occasion to examine the impact of similar contract provisions concerning waiver in this setting. Addressing an argument that a lender's " customary acceptance of late payments" over several years constituted a waiver of a contract requiring timely payments, the court responded by pointing to the parties' contract containing nonwaiver provisions very similar to those involved here. In light of these provisions, the Galleria court held:
While we can conceive of cases in which the nonwaiver provisions of a contract should not be applied, the facts here do not warrant such a result. Not only must the evidence show a course of conduct by which one party waived the contractual obligations of the other party, but additionally, it seems to us, the evidence should show that the same party also waived any right to rely on the nonwaiver provisions of his contract. In other words, in this instance, since a waiver is a known and voluntary relinquishment of a known right, those elements of waiver at least have to appear from the evidence before it can be held that the contractual right of nonwaiver has been waived.
The impact of Galleria P'ship in this case is significant. It would require that Saarels show not only that OBB's acceptance of the April cure payment waived the requirement in the Second Agreement that the payment be made by March 5, but also that Saarels demonstrate that OBB intended to waive the nonwaiver provisions of the mortgage or Second Agreement. Our review of the record and stipulated facts shows no persuasive evidence of such a waiver.
CONCLUSION
We AFFIRM the judgment of the bankruptcy court.