Opinion
WD 83652
01-26-2021
In the ESTATE OF Jose Luis LINDNER, Deceased; Dale Doerhoff, Successor Personal Representative, Respondent, v. Matthew Concannon, Appellant.
Dale C. Doerhoff and Shelly A. Kintzel, Jefferson City, MO, for respondent. David G. Brown, Colulmbia, MO, for appellant.
Dale C. Doerhoff and Shelly A. Kintzel, Jefferson City, MO, for respondent.
David G. Brown, Colulmbia, MO, for appellant.
Before Division Four: Cynthia L. Martin, Chief Judge, Presiding, Alok Ahuja, Judge and Thomas N. Chapman, Judge
Cynthia L. Martin, Judge
Matthew Concannon ("Concannon") appeals from the trial court's order denying his objection to final settlement and distribution of decedent Jose Luis Lindner's ("Lindner") estate. Concannon claims that the trial court erred as a matter of law in denying his objection to the distribution of $565,000 from the estate because Lindner created a security interest in favor of Concannon in that amount, which represented the proceeds of a promissory note, entitling Concannon to a priority distribution from the estate. Finding no error, we affirm.
Factual and Procedural Background
We view the evidence in the light most favorable to the trial court's judgment, disregarding any contrary evidence and inferences. In Est. of Washington , 603 S.W.3d 885, 889 (Mo. App. E.D. 2020).
On or about April 30, 2007, American Millennium Corporation, Inc. ("AMCI") executed a promissory note ("AMCI Note") in favor of Lindner in the amount of $1,459,000 together with interest totaling 12 percent per annum. The AMCI Note was due and payable on April 30, 2010. The AMCI Note provided, in relevant part:
This Note has not been registered under the Securities Act of 1933, as amended (the "Act"), and is a "restricted security," as that term is defined in Rule 144 under the Act. This Note may not be offered for sale, sold, or otherwise transferred except pursuant to an effective Registration Statement under the Act, or pursuant to an exemption from registration under the Act, the availability of which is to be established to the satisfaction of the Company.
....
... [Lindner] realizes that (i) there is no public market for the Note and [Lindner] may be unable to liquidate [Lindner's] investment in the event of an emergency, or pledge the Note as collateral for a loan; and (iv) [sic] the transferability of the Note is restricted and (A) requires conformity with the restrictions contained in this Section 7 below and (B) a legend has been placed on this
Note referring to the applicable restrictions on transferability.
....
8. Assignment
The rights and obligations of the parties hereunder shall not be assignable by either party without the consent of the other except [Lindner] may assign its rights to a Permitted Transferee. For purposes hereof, a Permitted Transferee shall be a corporation, partnership or other entity, which is a successor by merger, reorganization, consolidation or similar corporate transaction or in the case of the dissolution or liquidation of [Lindner], the successor to [Lindner] or the previous Permitted Transferee the same by will, the laws of intestate succession or the corporate laws of the State of Colorado. To the extent such assignments are allowed, the provisions of this Note shall be binding upon and inure to the benefit of the parties hereto and their respective designees, heirs, legal representatives, successors and assigns, to the extent provided herein.
Both Lindner and the president and chief executive officer of AMCI signed the AMCI Note.
On or about September 30, 2009, Lindner executed a document titled "Assignment of Promissory Note" ("Lindner Instrument"). The Lindner Instrument purported to assign all of Lindner's rights in the AMCI Note to Concannon as collateral security for three loans totaling $565,000 that Concannon extended to Providence Farms, LLC, a company for which Lindner was the managing member. The Lindner Instrument provided:
[Lindner], as holder of a certain Promissory Note from American Millennium Corporation, Inc. to [Lindner] dated April 30, 2007 (a copy of which is attached to this [document]), hereby assigns and transfers to [Concannon] all his right, title and interest in and to said Promissory Note to collateralize the total amount of credit extended by [Concannon] to [Lindner] as of today's date.
A copy of the AMCI Note was attached to the Lindner Instrument, along with a document titled "Consent to Assignment of Promissory Note" ("Consent to Assignment"). The Consent to Assignment purported to reflect AMCI's consent to the Lindner Instrument, and included a signature by David E. Welch as Vice President and chief financial officers of AMCI.
Lindner died on September 13, 2010. The probate case for his estate was opened on September 27, 2010. Concannon filed a claim against the estate on April 5, 2011, alleging that he was due $565,000 and that his claim was secured by the AMCI Note pursuant to the Lindner Instrument. The claim indicated that Concannon was "return[ing] the [AMCI Note] to the estate to secure the funds owed to him and for use of the surplus value of the note." Concannon attached copies of the AMCI Note, the Lindner Instrument, and the Consent to Assignment to his claim.
On November 20, 2013, the estate's personal representative ("Personal Representative") filed a motion for summary judgment ("Motion for Summary Judgment") with respect to Concannon's claim. The Motion for Summary Judgment argued that Concannon's claim was not secured by the AMCI Note pursuant to the Lindner Instrument because, pursuant to the terms of the AMCI Note, it could not be assigned without AMCI's consent, and the Consent to Assignment had been forged. The Motion for Summary Judgment asked the trial court to conclude that, pursuant to section 473.397, Concannon had a class 9 claim against the estate in the amount of $565,000 but to reject Concannon's position that his claim was secured by an interest in the AMCI Note.
During the pendency of the probate case, there have been three personal representatives. For the purpose of this appeal, we refer to the estate's personal representative generically because attributing actions to original or successor personal representatives is immaterial to the disposition of this appeal.
All statutory references are to RSMo 2000 as supplemented through the 2010 Cumulative Supplement unless otherwise indicated.
Under the version in effect at the time the Motion for Summary Judgment was filed, a class 9 claim was for "[a]ll other claims not barred by section 473.360." Section 473.397.
Concannon's response to the Motion for Summary Judgment argued that regardless whether the Consent to Assignment was forged, Concannon was nonetheless a secured creditor of the estate. Concannon noted that he was not seeking to enforce the AMCI Note as an assignee, but was instead seeking to compel the Personal Representative to honor Lindner's pledge of the AMCI Note proceeds as set forth in the Lindner Instrument. Concannon argued that the only legal issue relevant to determining the secured status of his claim against the estate was whether "there was a valid and enforceable pledge of the [AMCI] Note as collateral." Concannon's response further argued that, even if the "consent to assignment" provision in the AMCI Note was relevant, article 4 of the Uniform Commercial Code ("UCC"), adopted in Missouri and Colorado, provides that a clause in a promissory note purporting to restrict its transfer or assignment is ineffective insofar as the clause would impair the creation of a security interest.
The AMCI Note includes a choice-of-law provision specifying that it is governed by Colorado law.
While Concannon's claim against the estate and the Motion for Summary Judgment were pending, the Personal Representative, as the holder of the AMCI Note, settled the estate's claim against AMCI for $733,947. On April 8, 2014, the trial court approved this settlement and ordered that $565,000 of the AMCI Note proceeds be paid into the registry of the court pending disposition of Concannon's claim.
On March 9, 2015, the trial court conducted a hearing on Concannon's claim, including the Personal Representative's Motion for Summary Judgment. After this hearing, but before the trial court issued its decision, Concannon submitted a letter asking the trial court to consider a UCC financing statement Concannon had filed with the Missouri Secretary of State on March 13, 2014, the same day the Personal Representative filed a petition with the trial court to have the settlement with AMCI approved.
On April 6, 2015, the trial court issued an order addressing Concannon's claim ("April 2015 Order"). The April 2015 Order concluded that while Concannon was a creditor of the estate in the amount of $565,000, his claim was not secured because the AMCI Note could not be assigned or transferred without consent from AMCI which was never given. The April 2015 Order found that David E. Welch's signature on the Consent to Assignment had been forged by Lindner. The April 2015 Order stated:
There being no valid authority to transfer or assign the note, [Mr. Lindner] could not assign it. Failing to lawfully assign it precludes a security interest. The pledged assignment of the note by Mr. Lindner has no more [e]ffect tha[n] if he had pledged his pet rock, with the exception that, it appearing he defrauded Dr. Concannon, had he lived he would be subject to the punishments of the law.
The Court is not unmindful that Dr. Concannon has been done wrong, but to provide the remedy that he asks would be doing wrong to other creditors standing in similar shoes as he.
Concannon filed a motion for reconsideration, for new trial, and to amend the judgment ("Motion for Reconsideration") asking the trial court to amend the April 2015 Order to make it clear that the evidentiary record included the UCC financing statement, or if the trial court had not considered the UCC financing statement, to grant a new trial for the purpose of doing so. The Motion for Reconsideration further asked the trial court to hold that Concannon had perfected a security interest in the AMCI Note, that the estate's Personal Representative failed to prove that Lindner's underlying pledge of the AMCI Note was void, and that as a result, the funds held in the trial court's registry should be paid to Concannon.
The trial court issued an order on May 22, 2015, confirming that the UCC financing statement was a part of the record but otherwise denying the Motion for Reconsideration. The trial court explained:
The Court finds that the inclusion of the [UCC financing statement] into the record does not warrant a new trial or amendment of the [April 2015 Order] because the [UCC financing statement] is irrelevant to the dispositive issue. The anti-assignment provisions of the [AMCI] Note as well as applicable federal securities laws prohibited the assignment and as a result, Dr. Concannon is an unsecured creditor. The [UCC financing statement] only relates to perfection of an alleged security interest, which is irrelevant to whether a security interest exists in the first place.
Concannon did not immediately appeal the April 2015 Order as would have been permitted, though not required, by section 472.160. The trial court entered an order releasing the AMCI Note proceeds from the court's registry to the estate in January 2016.
On December 13, 2019, the Personal Representative filed a petition asking the trial court to approve final settlement and distribution of the estate. The proposed final settlement treated Concannon as a pro rata class 9 creditor under section 473.397, and indicated that Concannon would receive $14,379.40 of his $565,000 claim.
Concannon filed an objection to the proposed final settlement on December 18, 2019 ("Objection to Final Settlement"). Concannon's Objection to Final Settlement alleged that: (i) $565,000 in proceeds from the AMCI Note had been validly pledged and assigned to Concannon pursuant to the terms of the Lindner Instrument; (ii) these proceeds were lawfully and equitably Concannon's property; (iii) the Personal Representative had no legal right to collect the disputed AMCI Note proceeds or to withhold them from Concannon; (iv) the trial court committed error and abused its discretion when it failed to order the Personal Representative to honor the pledge and assignment of the disputed AMCI Note proceeds; (v) the trial court committed error and abused its discretion when it found that the pledge and assignment of the AMCI Note proceeds was invalid; (vi) the trial court committed error and abused its discretion when it released the disputed AMCI Note proceeds to the estate; and (vii) release of the disputed AMCI Note proceeds to anyone other than Concannon would violate Concannon's equitable and legal rights in and to the proceeds. The Objection to Final Settlement attached and incorporated by reference the briefing Concannon filed in connection with the Personal Representative's Motion for Summary Judgment, and Concannon's Motion for Reconsideration filed in response to the April 2015 Order. The Objection to Final Settlement asked the trial court to remove $565,000 from the estate and to pay that amount to Concannon as a priority creditor.
The trial court heard arguments on Concannon's Objection to Final Settlement on December 23, 2019. During the hearing, Concannon confirmed that he was asking the trial court to reconsider its previous ruling (the April 2015 Order), although Concannon was limiting his argument to whether the Lindner Instrument pledged AMCI Note proceeds to Concannon as to create a security interest in those proceeds, notwithstanding that the Consent to Assignment was invalid. The trial court advised the parties on the record that since no new information had been submitted, it was not inclined to reconsider its previous ruling that Concannon did not have a security interest in the AMCI Note proceeds. The trial court then entered a judgment/order ("December 2019 Order") denying Concannon's Objection to the Final Settlement. The December 2019 Order noted that the Personal Representative's petition to approve final settlement and distribution of the estate would be held in abeyance pending appeal of the December 2019 Order.
Concannon filed this timely appeal from the December 2019 Order.
Jurisdiction
Before reaching the merits of Concannon's appeal, we must consider our jurisdiction to decide the appeal. See In Est. of Rich v. Caskey , 602 S.W.3d 306, 309 (Mo. App. W.D. 2020). "The right to appeal is purely statutory and where a statute does not give a right to appeal, no right exists." In Int. of L.L. v. D.L. , 607 S.W.3d 206, 208 (Mo. App. W.D. 2020) (quoting State ex rel. Koster v. ConocoPhillips Co. , 493 S.W.3d 397, 399 (Mo. banc 2016) ).
Ordinarily, an appeal may only be taken from a final judgment by an aggrieved party to the suit. Section 512.020(5). As such, orders entered in probate cases are ordinarily interlocutory and not eligible to appeal prior to the final disposition of the probate matter. In Matter of Smith , 550 S.W.3d 541, 546-47 (Mo. App. E.D. 2018). "However, if an order falls within the enumerated exceptions set forth in [s]ection 472.160.1, it is deemed final for purposes of appeal, and any interested and aggrieved person has the right to appeal." Id. at 547. Concannon states that we have authority to consider his appeal pursuant to section 472.160.1(14), which provides:
Any interested person aggrieved thereby may appeal to the appropriate appellate court from the order, judgment or decree of the probate division of the circuit court in any of the following cases:
...
(14) In all other cases where there is a final order or judgment of the probate division of the circuit court under this code except orders admitting to or rejecting wills from probate.
The right to an appeal pursuant to section 472.160.1(14) is "liberally construed, as the law favors the right to appeal." State ex rel. Est. of Perry v. Roper , 168 S.W.3d 577, 582 (Mo. App. W.D. 2005) (quoting In re Est. of Clark , 83 S.W.3d 699, 702 (Mo. App. W.D. 2002) ). However, an immediate appeal of an order falling within the purview of section 472.160.1 is not mandatory. In Est. of Smith v. Smith , 284 S.W.3d 198, 200 (Mo. App. S.D. 2009). The statute creates the right to appeal an interlocutory order immediately, but "[i]f a party chooses not to exercise this right, the particular matter may be appealed following final settlement or other judicial action fully and finally disposing of the proceeding." Id. (quoting In re Est. of Burg , 68 S.W.3d 543, 545 (Mo. App. E.D. 2001) ). The Personal Representative argues in his brief that section 472.160.1(14) cannot serve as statutory authority for Concannon's appeal from the December 2019 Order because Concannon failed to take an appeal from the April 2015 Order. We disagree. Though it is plain from the record that Concannon's Objection to Final Settlement was an attempt to reargue issues already disposed by the interlocutory April 2015 Order, the Personal Representative cites no authority for the proposition that as a result, Concannon has no right to appeal the interlocutory December 2019 Order pursuant to section 472.160.1(14), since that order finally resolved all issues relating to the secured status of Concannon's claim. Even if the December 2019 Order in not a "final order or judgment" for purposes of section 472.160.1(14), as the Personal Representative observed during oral argument, the December 2019 Order is an order addressing apportionment amongst creditors, the subject of section 472.160.1(3).
During oral argument, the Personal Representative withdrew his objection on the basis of jurisdiction to entertain this appeal, and offered that in fact section 472.160.1(3) (addressing apportionments) arguably afforded Concannon jurisdiction to appeal. Though the Personal Representative abandoned his argument, we are nonetheless obliged to address our jurisdiction to entertain an appeal. L.L. v. D.L., 607 S.W.3d 206, 208 (M. App. W.D. 2020) (holding that court of appeals has sua sponte obligation to determine its authority to entertain an appeal).
It is true that Concannon's appeal from the December 2019 Order will have the practical effect of foreclosing an appeal from the April 2015 Order after Lindner's estate is fully and finally resolved. But, in the absence of authority suggesting that an interested party in a probate proceeding is procedurally barred from raising as an objection to final settlement an issue already resolved by an earlier order that was not permissively appealed, we are not inclined to find that we have no jurisdiction to entertain Concannon's appeal from the December 2019 Order. See State ex rel. Est. of Perry , 168 S.W.3d at 582 (noting that the right to an appeal pursuant to section 472.160.1(14) is "liberally construed, as the law favors the right to appeal").
The Personal Representative also argues that we do not have jurisdiction to entertain this appeal because Concannon was not aggrieved by the December 2019 Order. The Personal Representative bases this argument on concessions Concannon made during arguments on his Objection to Final Settlement. Our review of the transcript from the December 23, 2019 proceeding confirms that Concannon conceded that the Consent to Assignment was not enforceable because it had been forged, and conceded that the trial court correctly determined that his claim against the estate was a class 9 claim. But, the Objection to Final Settlement did not concede that Lindner's alleged pledge of AMCI Note proceeds was unenforceable. Instead, the Objection to Final Settlement asked the trial court to reconsider whether the Lindner Instrument constituted an enforceable pledge of AMCI Note proceeds to Concannon such that Concannon, and not the estate, was entitled to those proceeds to the extent of Concannon's claim.
Concannon argued before the trial court and now argues on appeal that the debt Lindner owed him was secured by the proceeds of the AMCI Note. Though Concannon conceded he is a class 9 creditor under section 473.397, that is not an admission that Concannon was unable to enforce Lindner's purported pledge of AMCI Note proceeds.
Missouri law provides that a secured creditor may file a demand against the estate for the full amount of his claim or he may resort to his security. Yonke v. Est. of Alber , 351 S.W.2d 794, 796 (Mo. App. 1961) ; see also 5B Missouri Practice section 977 (3d ed. 2000) ("A secured creditor may, however, and except where the debt is amply secured should, file his claim against the estate of the decedent."). Section 473.387 provides that secured creditors may file a claim against the decedent's estate, and the claim "shall be allowed in the same amount as if it were unsecured." If the creditor seeks a claim against the estate, "[t]he creditor may surrender his security and be paid out of the assets of the estate," but that "nothing in [section 473.387] shall be construed to compel the creditor to surrender his security until he receives payment of his debt in full or he is paid the value of the security." Section 473.387. In fact, "[p]ayment of the claim shall be upon the basis of the full amount allowed if the creditor surrenders his security." Id.
The same issue was raised in Concannon's briefing filed in response to the Personal Representative's Motion for Summary Judgment when Concannon argued that he was not seeking to enforce the AMCI Note as an assignee, but was instead seeking to compel the Personal Representative to honor Lindner's pledge of the AMCI Note proceeds as set forth in the Lindner Instrument. Concannon's summary judgment briefing was attached to and incorporated by reference in the Objection to Final Settlement. Concannon's argument to the trial court about his Objection to Final Settlement crystallized the focus of his request for reconsideration of the April 2015 Order:
The other question was that between Jose Lindner and Dr. Concannon, was there a valid enforceable pledge in securitization of Jose Lindner's obligation to Dr. Concannon. So whether or not Dr. Concannon had the right to go collect it from AMCI, did he have an enforceable pledge in securitization between himself and Jose Lindner?
And that is the--the question that bears on whether the money that was in the registry was properly Dr. Concannon's money that should have been paid out to him, or that the personal representative should have paid out directly to Dr. Concannon. It should never--it should never have been a part of the funds to be distributed from the Estate.
I think the Court has--may have already considered these issues carefully before, but the thing that I really want to focus the Court on is that the decision that we're here about today is not the ruling on the claim. The claim was properly ruled on.
....
... The question is whether the money had already been pledged away by Jose Lindner when he issued the writing to Dr. Concannon in which he pledged [the AMCI Note] as security to induce Dr. Concannon to loan him the money.
Because the trial court denied the Objection to Final Settlement, Concannon was aggrieved. It is irrelevant to our jurisdiction to entertain this appeal that the same argument was unsuccessfully raised by Concannon in connection with the April 2015 Order.
Standard of Review
"The judgment of a [trial] court entered in a probate proceeding ‘will be upheld on appeal unless it is not supported by substantial evidence, is against the weight of the evidence, or erroneously declares or applies the law.’ " In Est. of Heil v. Heil , 538 S.W.3d 382, 386 (Mo. App. W.D. 2018) (quoting In re Est. of Hayden , 258 S.W.3d 505, 508 (Mo. App. E.D. 2008) ). "A claim that the trial court erroneously declared or applied the law is reviewed de novo. " In Matter of Williams , 573 S.W.3d 106, 112 (Mo. App. W.D. 2019) (quoting In Est. of Briggs , 449 S.W.3d 421, 425 (Mo. App. S.D. 2014) ). Analysis
Concannon sets forth a single point on appeal challenging the December 2019 Order. Concannon argues that the trial court committed legal error when it denied Concannon's Objection to Final Settlement challenging the proposed distribution of $565,000 because Lindner had validly pledged $565,000 of the proceeds of the AMCI Note to Concannon as collateral for Lindner's debt. Concannon concedes that the trial court committed no error in concluding that no security interest was created when the AMCI Note was purportedly assigned to Concannon by Lindner. Concannon does not dispute that the AMCI Note required AMCI's consent to be assigned, and that the Consent to Assignment was forged and ineffective.
Concannon argues in his reply brief that this appeal does not concern the law regarding "pledges" created by delivery of possession of collateral. See Gibson v. Harl , 857 S.W.2d 260, 271 (Mo. App. W.D. 1993) ("It is the very essence of a pledge transaction that the possession of the pledged property be transferred to the pledgee. The third-party defendants ... could not make a valid pledge of the promissory note, of course, without delivery of possession of that collateral security to the pledgee." (citation omitted)). Concannon instead uses, and contends the trial court used, the term "pledge" "in [a] looser sense" to argue that that the trial court misapplied the law concerning security agreements. [Reply Brief, p. 17] Concannon argues in his reply brief that "[t]he core issue is whether Lindner promised to pay Concannon from the proceeds of the [AMCI] Note and whether that promise was specifically enforceable." [Reply Brief, p. 17]
Concannon disagrees, however, with the trial court's conclusion that Lindner's failure to assign the AMCI Note lawfully precluded the creation of a security interest in the AMCI Note proceeds. Concannon argues that the Lindner Instrument created a UCC Article 9 security interest that attached to the AMCI Note proceeds in the hands of Lindner, and that was valid and enforceable as between Lindner and Concannon. Concannon asserts that the AMCI Note anti-assignment clause barred assignment of the right to enforce the AMCI Note without AMCI's prior consent, but that the anti-assignment did not bar a pledge of the proceeds of the AMCI Note and, even if it did, the AMCI Note was extinguished and had no effect on a dispute over its proceeds once the Personal Representative entered into a settlement agreement with AMCI. Key to Concannon's argument is his contention that Lindner's ownership of the AMCI Note included two components: an enforceable interest in the AMCI Note itself, and a separate interest in the proceeds of the AMCI Note. Concannon argues that the AMCI Note's anti-assignment clause only barred Lindner's transfer of his interest in the AMCI Note itself without AMCI's consent, but did not operate to bar Lindner from transferring his interest in proceeds received from the AMCI Note. Concannon asserts that AMCI had no interest in controlling what Lindner did with those proceeds once paid. Concannon thus claims that the Lindner Instrument operated to create an Article 9 security interest in the proceeds of the AMCI Note (as opposed to the AMCI Note itself), and the trial court committed error in finding otherwise.
The Personal Representative argues on appeal that because Concannon's claim against the estate specified that Concannon held an assignment of the AMCI Note, he cannot now argue that he has a UCC article 9 security interest in the proceeds of the AMCI Note, a different ground for recovery. We disagree. "Because the legislature intended to make it easy for nonlawyers to present their claims against estates, a claim filed in probate court is not judged by the strict rules of pleading." In Est. of Hedrick , 808 S.W.2d 30, 32 (Mo. App. E.D. 1991). "[Trial] courts are to construe pleadings liberally and to deem them sufficient if they are specific enough to give the personal representative of the estate notice of a claim's nature and extent and to permit the court to adjudicate the claim with finality." Langworthy v. Preston , 975 S.W.2d 249, 251 (Mo. App. W.D. 1998). Here, Concannon's claim against the estate stated that he had a claim of $565,000 "on account of a collateralized promissory note assigned to [him]" and then attached a copy of the AMCI Note, the Lindner Instrument, and AMCI's purported consent to the assignment. And Concannon's briefing in response to the Personal Representative's Motion for Summary Judgment expressly argued that even if the assignment of the AMCI Note could not be enforced, Concannon could nonetheless enforce Lindner's pledge to him of the AMCI Note proceeds. Concannon's claim, liberally construed, is not constrained to whether Concannon received valid assignment of the AMCI Note. Instead, it is clear that the claim is that Concannon has a security interest in the AMCI Note, which encompasses the argument Concannon is making on appeal.
The Personal Representative asserts that Concannon never raised this argument below. We disagree. In his Objection to Final Settlement, Concannon incorporated by reference the brief he filed on March 18, 2015, in response to the Personal Representative's Motion for Summary Judgment. In that brief, Concannon argued:
Because the [AMCI] Note has already been settled, Concannon's argument does not require that he have any right to enforce the [AMCI] Note against [AMCI] under the UCC or otherwise. Concannon need only have an enforceable pledge from Lindner, sufficient to give him a security interest in $565,000 of the proceeds of the [AMCI] loan.
....
There is an important distinction between: (i) the assignment of the [AMCI] Note to Concannon, which purported to give Concannon certain legal rights against [AMCI] under the [ACMI] Note; and (ii) the pledge of the [AMCI] Note and its proceeds to Concannon, which purports to give Concannon certain legal rights as to Lindner, specifically the right to have the Concannon Loan repaid from Lindner's proceeds from the [AMCI] Note. The Successor Personal Representative addresses the validity of the assignment as between Concannon and [AMCI] (which is irrelevant, as discussed more fully below) but never addresses or rebuts the validity of Lindner's pledge as between Lindner and Concannon. As a result, there is no basis for this Court to invalidate Lindner's pledge. Put simply, whether Concannon could have enforced the [AMCI] Note against [AMCI] has no bearing on the question whether the proceeds of the [AMCI] Note are collateral for the Concannon Loan.
....
... Given that [AMCI] is not a party to this action, and given that the right to demand consent has been extinguished by the settlement of the [AMCI] Note, there is no way for [AMCI] to void the assignment at this point. Furthermore, even if the assignment could still be voided by [AMCI], that would have no effect on Lindner's pledge of the proceeds of the [AMCI] loan to Concannon, which does not require that the assignment of the underlying note be enforceable against [AMCI].
Proof of this contention is essential. Unless the Lindner Instrument was a security agreement creating a valid security interest in the AMCI Note proceeds distinguishable from the AMCI Note itself, Concannon is afforded no greater right to recover from assets of the estate (including the AMCI Note proceeds) than any other class 9 creditor of the estate. Concannon bore the burden to establish that the Lindner Instrument created a valid security interest in the proceeds of the AMCI Note as to entitle him to those proceeds instead of the estate. Cf. Smith v. Staley , 156 S.W.2d 766, 767 (Mo. App. 1941) (noting that the claimant bore the burden to prove that execution of promissory notes between the claimant and the decedent in a claim filed in probate court against the decedent's estate).
The creation of a security interest is governed by Article 9 of the UCC, codified in Chapter 400 of the Missouri Revised Statutes. See section 400.9-109(a)(1) (providing that section 400.9-101 et seq. provides to all "transaction[s], regardless of [their] form, that create[ ] a security interest in personal property or fixtures by contract"). "A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment." Section 400.9-203(a). "Attachment" is a term of art that, with respect to security agreements, concerns "the creation or coming into existence of a security interest." Moore Equip. Co. v. H.H. Halferty , 980 S.W.2d 578, 586 n.4 (Mo. App. W.D. 1998). A security interest becomes enforceable against a debtor, and therefore attaches to the collateral, when three conditions are met:
(1) Value has been given;
(2) The debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and
(3) One of the following conditions is met:
(A) The debtor has authenticated a security agreement that provides a description of the collateral and, if the security interest covers timber to be cut, a description of the land concerned;
(B) The collateral is not a certificated security and is in the possession of the secured party under section 400.9-313 pursuant to the debtor's security agreement;
(C) The collateral is a certificated security in registered form and the security certificate has been delivered to the secured party under section 400.8-301 pursuant to the debtor's security agreement; or
(D) The collateral is deposit accounts, electronic chattel paper, investment property, or letter-of-credit rights, and the secured party has control under section 400.9-104, 400.9-105, 400.9-106 or 400.9-107 pursuant to the debtor's security agreement.
Concannon's brief does not discuss the first requirement--whether there was value given. However, it is uncontroverted that Concannon's claim against Lindner's estate in the amount of $565,000 was approved, and that the Lindner Instrument was signed by Lindner in exchange for Concannon's extension of credit.
Concannon's brief does not discuss the second requirement--whether Lindner had rights in the collateral (the AMCI Note proceeds) and the power to transfer those rights to Concannon. Though it is uncontested that Lindner had the right to enforce the AMCI Note and thus to collect proceeds from the AMCI Note, the Personal Representative disputes that Lindner had the power to transfer his interest in the AMCI Note proceeds because federal securities law forbid any such transfer. Concannon's failure to address this issue in his brief is arguably fatal to his appeal, as we presume that the trial court's judgment is correct and the appellant has the burden to show otherwise. Kinder v. Calcote , 537 S.W.3d 379, 383 (Mo. App. W.D. 2018).
Even if we overlook Concannon's failure to address whether he established the second requirement of a valid security interest that attached to collateral, Concannon would be unable to establish the third requirement. With respect to the third requirement, Concannon does not claim that he had possession of the collateral (the AMCI Note proceeds) pursuant to section 400.9-203(b)(3)(B). Instead, he argues that the Lindner Instrument constituted an authenticated security agreement that described the collateral pursuant to section 400.9-203(b)(3)(A). The Personal Representative disagrees, arguing that the Lindner Instrument purported to assign and transfer all of Lindner's rights in the AMCI Note itself, and did not describe a discrete security interest in the AMCI Note proceeds upon their receipt independent of the AMCI Note. We agree with the Personal Representative. A security agreement is statutorily defined as "an agreement that creates or provides for a security interest." Section 400.9-102(a)(72). "A security agreement has been described as ‘the document which delineates the scope of the debtor/creditor relationship and gives meaning to the abbreviated terms of the financing statement.’ " Bradley v. K & E Invs., Inc. , 847 S.W.2d 915, 921 (Mo. App. S.D. 1993) (quoting Polk Cnty. Bank v. Graven , 745 S.W.2d 793, 795 (Mo. App. S.D. 1988) ). "Although no precise words are required by the statutory definition of security agreement, the definition indicates there must be some language in the agreement that actually conveys a security interest." Id. (emphasis omitted). "[T]he debtor's intent to create a security interest must be ascertained and adjudged by the language of the security agreement ...." Polk Cnty. Bank , 745 S.W.2d at 795 (quoting Drysdale v. Cornerstone Bank , 562 S.W.2d 182, 185 (Mo. App. 1978) (emphasis added)).
Further, the security agreement must describe the collateral. Section 400.9-203(b)(3)(A). The description of collateral in a security agreement is sufficient "if it reasonably identifies what is described," whether or not the description is specific. Section 400.9-108(a).
[A] description of collateral reasonably identifies the collateral if it identifies the collateral by:
(1) Specific listing;
(2) Category;
(3) ... [A] type of collateral defined in chapter 400;
(4) Quantity;
(5) Computational or allocational formula or procedure; or
(6) Except as otherwise provided in subsection (c), any other method, if the identity of the collateral is objectively determinable.
The Lindner Instrument is titled "ASSIGNMENT OF PROMISSORY NOTE." After identifying the assignor as Lindner and the assignee as Concannon, the Lindner Instrument makes the following recitals:
1. ASSIGNEE has, prior to this date, extended credit to Providence Farms, LLC in the following amounts, the repayment of which amounts has, at all times, been personally guaranteed by ASSIGNOR, who is the managing member of Providence Farms, LLC[ ]:
$100,000.00 on October 15, 2008
$225,000.00 on February 12, 2009
2. Providence Farms, LLC wishes to borrow today from ASSIGNEE an additional amount of $240,000.
3. ASSIGNEE, in order to lend said $240,000 to Providence Farms, LLC, is requiring a personal guarantee from ASSIGNOR and a pledge of sufficient collateral from ASSIGNOR to cover said loan plus other amounts described above, which requires a total of $565,000 of collateral.
4. The Parties agree that the value of the [AMCI] Note described below is an amount that is equitable and adequate to act as the collateral required by ASSIGNEE.
Though the "recital" refers to Concannon's insistence on a "pledge of sufficient collateral" as a condition of extending credit, the recital does not describe the collateral, and is not an agreement by Lindner to create a security interest in any particular collateral. It is in the next part of the Lindner Instrument that describes the collateral:
[I]n consideration of the above recitals, the mutual promises set forth herein and other good and valuable consideration,
the adequacy and sufficiency of which is hereby acknowledged by the Parties, the ASSIGNOR hereby personally, individually, and unconditionally guarantees payment of whatever amount at any time shall be owed to ASSIGNEE by Providence Farms, LLC as a result of the extensions of credit described above, and ASSIGNOR, as holder of [the AMCI Note] to ASSIGNOR dated April 30, 2007 (a copy of which is attached to this ASSIGNMENT), hereby assigns and transfers to the ASSIGNEE all of his right, title and interest in and to said Promissory Note to collateralize the total amount of credit extended by ASSIGNEE to ASSIGNOR as of today's date .
(Emphasis added.) Lindner's signature appears at the end of the Lindner Instrument.
Lindner's signature on the Lindner Instrument satisfies the authentication requirement. See section 400.9-102(a)(7) (defining "authenticate" as "[t]o sign"). The remaining question is whether the Lindner Instrument described proceeds Lindner receives from the AMCI Note, rather than the AMCI Note itself, as the collateral in which Lindner intended to create a security interest. See Polk Cnty. Bank , 745 S.W.2d at 795. We conclude that it does not. The plain language of the Lindner Instrument describes the collateral Lindner intended to pledge as " all of [Lindner's] right, title and interest in and to" the AMCI Note itself. This description of the security interest purportedly given by the Lindner Instrument is unambiguous. A security interest in the entirety of Lindner's rights in the AMCI Note is not the same as a security interest in AMCI Note proceeds after they have been received. If Lindner intended to create a security interest in the proceeds of the AMCI Note independent from the note itself the Lindner Instrument could have described the pledged collateral as such. It did not. Instead, the Lindner Instrument pledged Lindner's interest in the AMCI Note itself, and not Lindner's interest in proceeds of the AMCI Note after they had been paid. This conclusion is further supported by the fact that the Lindner Instrument is titled "Assignment of Promissory note," and by the fact that Lindner attached the Consent to Assignment, wherein AMCI purported to "consent[ ] to the assignment of [the AMCI Note] by [Lindner] to [Concannon] [ ] effective today."
Concannon's argument that Illinois State Bank v. Yates , 678 S.W.2d 819 (Mo. App. E.D. 1984), and Kaw Valley State Bank & Trust v. Commercial Bank of Liberty, N.A. , 567 S.W.2d 710 (Mo. App. 1978), are analogous and therefore controlling is not persuasive. Neither case concerns a situation we have here: a debtor who executed a contract that purported to be a security agreement assigning a described asset that the debtor, in fact, had no authority to assign. Instead, Illinois State Bank and Kaw Valley State Bank & Trust concern situations where the debtor pledged non-negotiable notes as collateral. Illinois State Bank , 678 S.W.2d at 824 ; Kaw Valley State Bank & Trust , 567 S.W.2d at 712. Both cases reaffirmed the principle that a pledgee's interest in the pledged property is identical to that of the pledgor, and concerned the extent of the pledgor's interest given applicable defenses. Illinois State Bank , 678 S.W.2d at 824-25 ; Kaw Valley State Bank & Trust , 567 S.W.2d at 712-14. As discussed in supra note 7, whether a pledge of the AMCI Note occurred in this case is not at issue. Instead, Concannon himself states the issue in the case as "whether Lindner promised to pay Concannon from the proceeds of the [AMCI] Note and whether that promise was specifically enforceable." [Reply Brief, p. 17] We conclude that Lindner did not.
Concannon concedes, and we agree, that because the AMCI Note specifically provided that it is not assignable without AMCI's consent, which was never given, the Lindner Instrument was ineffective to create a security interest in the AMCI Note. And because the only collateral described in the Lindner Instrument was Lindner's rights in the AMCI Note itself, we cannot conclude that the Lindner Instrument constituted a security agreement that created a security interest in the proceeds of the AMCI Note after they have been received.
Section 400.9-315(a) is of no aid to Concannon. It provides that "[a] security interest ... continues in collateral notwithstanding sale, lease, license, exchange, or other disposition thereof" and that "[a] security interest attaches to any identifiable proceeds of collateral." Section 400.9-315(a). Thus, for a security interest to survive settlement of the AMCI Note by the Personal Representative and exist in the proceeds thereof, the security interest would first had to have attach to the AMCI Note itself, which did not happen here, given that the AMCI did not give its consent to the assignment of the AMCI Note.
Concannon's point on appeal is denied.
Conclusion
The December 2019 Order is affirmed.
All concur