# B-Bar Tavern Inc. v. Prairie Mountain Bank (In re B-Bar Tavern Inc.)

> United States Bankruptcy Court, D. Montana · December 18, 2013 · 506 B.R. 879

URL: https://www.frixlaw.com/law-library/cases/8496856

## Case

- **Full name:** In re B-BAR TAVERN INC, Debtor. B-Bar Tavern Inc v. Prairie Mountain Bank
- **Court:** United States Bankruptcy Court, D. Montana
- **Decided:** December 18, 2013
- **Citations:** 506 B.R. 879
- **Precedential status:** Published
- **Opinion:** Opinion of the court by Kirscher
- **Judges:** Kirscher
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

MEMORANDUM OF DECISION
RALPH B. KIRSCHER, Bankruptcy Judge.
In this adversary proceeding Plaintiff/Debtor B-Bar Tavern Inc. (“B-Bar *885 Tavern”) objects to Proof of Claim No. 1 filed by creditor Prairie Mountain Bank (“PMB”) and seeks to invalidate the Trust Indenture (“TI”) securing PMB’s debt and avoid PMB’s lien on Plaintiffs property, and also seeks attorney fees. PMB answers that it honored all agreements with B-Bar Tavern, and PMB requests reformation of the TI based on mutual mistake, plus enforcement of the TI against its security which Plaintiff pledged under the TI and a Settlement Agreement. After trial of this cause and review of the record, the parties’ briefs, and applicable law, for the reasons set forth below judgment shall be entered: (1) disallowing PMB’s Proof of Claim No. 1 but otherwise dismissing Plaintiffs claims for relief, and (2) reforming the TI to correct mutual material mistakes on the TI, Exhibit 35. Each party shall be responsible for its own attorneys’ fees and costs.
Plaintiff was represented at the trial by attorney James A. Patten (“Patten”) of Billings and Benjamin C. Tiller of Great Falls. PMB was represented by attorneys James Anthony Donahue (“Donahue”), Gregory J. Hatley (“Hatley”) and John P. Paul (“Paul”) of Great Falls. The following persons testified: Steven Potts (“Potts”), Laura Vukasin (“Vukasin”), Kimberly Hannah (“Hannah”), Jack Barnes (“Jack”), Richard Barnes (“Dick”), Michael Richards, 1 Heather Robbins (“Robbins”), and accountant Jim Koontz (“Koontz”). Plaintiffs Exhibits (“Ex.”) 1-through-49 were admitted into evidence without objection, as were Ex. 51, 52, and PMB’s Ex. A-through-Z, AA, BB, CC, DD, and EE. Ex. 50 and 53 were admitted over PMB’s objection. The Court took judicial notice of certain adjudicative facts enumerated in the Court’s Order entered on July 30, 2013 (Document No. 93). 2
At the conclusion of the parties’ cases-in-chief the Court granted the parties time to file post-trial briefs, which have been submitted and reviewed by the Court along with the record and applicable law. This matter is ready for decision.
This Court has jurisdiction of the above-captioned Chapter 11 case and Debtor’s Objection to PMB’s Proof of Claim under 28 U.S.C. § 1334 (a). Debtor’s Objection to PMB’s claim and request to avoid PMB’s lien are core proceedings under 28 U.S.C. § 157 (b)(2)(B) and (K). This Memorandum of Decision includes the Court’s findings of fact and conclusions of law pursuant to F.R.B.P. 7052 (applying Fed. R.Civ.P. 52) in adversary proceedings.
PROCEDURAL HISTORY
Plaintiff B-Bar Tavern commenced this Chapter 11 case by filing a petition on February 27, 2012, signed by Richard Barnes, president. The petition states that Debtor is a small business debtor as defined at 11 U.S.C. § 101 (51D). Debtor listed real property located at 616 10th Avenue South in Great Fall, Montana, described as its principal place of business on Schedule A with a current market value of $1,885,750.00, securing a claim in the amount of $823,681.41. Schedule D lists PMB as a creditor holding a contingent, unliquidated, disputed claim in the amount of $823,681.41 secured by Debtor’s place of *886 business. No priority claims are scheduled, and Schedule F lists a total of $0 in unsecured nonpriority claims.
PMB filed the only Proof of Claim in this case, Claim No. 1, on June 12, 2012, asserting a secured claim in the amount of $820,923.27, plus interest, fees, costs and expenses based on the TI. Claim 1 values the real estate security at $1,410,150.00. The amount of arrearage is stated in the amount of $156,791.00. On September 7, 2012, Debtor filed its Disclosure Statement and Plan of Reorganization. The Court approved the Disclosure Statement after a hearing held on October 22, 2012.
Debtor filed its complaint initiating this adversary proceeding on August 22, 2012, objecting to PMB’s Proof of Claim, seeking a declaratory judgment that PMB’s lien is invalid and seeking to avoid PMB’s lien under § 544(a), and requesting costs and attorneys’ fees. PMB filed its answer on September 20, 2012, including a counterclaim asking the Court to revise or reform the TI under MONT. CODE ANN. (“MCA”) § 28-2-1611 and other Montana statutes to correct a mutual mistake of the parties and include the name of Barnes, Inc., on the TI. Plaintiff filed a motion to amend its complaint and join attorney Steven T. Potts as a party, but that motion was denied. Trial was originally scheduled to commence in April 2018, but was continued until trial commenced on August 5, 2013.
FACTS
A brief summary of the facts is helpful in dealing with this complicated record. Plaintiff is owned by Dick Barnes who is Jack’s brother. At Jack’s request Dick agreed to sign a personal guaranty of a loan from PMB to Jack’s company Barnes, Inc., and Dick agreed to pledge his company/Plaintiff s place of business as security for the loan. During the pendency of the loan Jack restructured his companies by transferring Barnes, Inc.’s properties to two new limited liability companies (“LLC’s”). Barnes, Inc., defaulted on the loan, and PMB sought to enforce its rights against the security pledged by Plaintiff under the TI, Ex. 35.
The approved Pretrial Order sets forth the following agreed facts:
The following material facts are not in dispute:
1. Plaintiff owns real property situated at 616 — 10th Ave, South, Great Falls, MT.
2. Richard [“Dick”] Barnes is the President and sole owner of the B-Bar Tavern Inc. stock.
3. Richard Barnes’ brother is Jack Barnes.
4. Jack Barnes was the President and sole shareholder of Barnes, Inc. In 2009, he became the President and sole member of two new entities, Prospector Land Company LLC and Prospector Catering Company LLC.
5. In 2007 a bar and restaurant owned by Barnes, Inc. named Prospector I was destroyed by fire.
6. In January, 2008, Barnes, Inc. borrowed, through a line of credit, $500,000 from Prairie Mountain Bank secured by the Barnes, Inc., real property on Smelter Ave.
7. In June, 2008, Barnes, Inc. entered into a construction loan agreement with Prairie Mountain Bank for the reconstruction of the bar, restaurant, and casino on its property on Smelter Avenue and secured the loan with a trust indenture on the Barnes, Inc., property on Smelter Avenue in Great Falls, Montana, and the Barnes Inc. real property on Third Ave. N.W., Great Falls, Montana [the “J-Bar T”].
*887 8. In October, 2008, Barnes, Inc., borrowed $850,000 from Prairie Mountain Bank to complete the construction of the bar, restaurant, and casino on Smelter Ave. Jack Barnes and Richard Barnes guaranteed the $850,000 loan. B-Bar Tavern Inc, executed, as grantor, a Deed of Trust with Prairie Mountain Bank as beneficiary, for $850,000. At that time, Barnes Inc. still owned the real property on Smelter Ave.
9. As of December 31, 2008, Barnes Inc. had three loans outstanding with Prairie Mountain Bank in the principal amounts of $500,000, $1,800,000, and $850,000.
10. Great Falls attorney Steven Potts had represented Jack Barnes and Barnes, Inc., prior to April 1,2009. Attorney Potts represented Richard Barnes and B-Bar Tavern prior to April 1, 2009. Attorney Potts was a shareholder of Prairie Mountain Bank and represented Prairie Mountain Bank pri- or to April 1, 2009.
Additional facts are established by the testimony and exhibits.
Potts has been an attorney for 27 years, and practiced in Great Falls and briefly in New York. He testified that most of his legal work relates to economic matters such as contracts, business transactions, and estates. Potts was the registered agent for B-Bar Tavern until he resigned in 2012, and also was the registered agent for other Barnes family entities. Tr., p. 76. Dick testified that Potts represented B-Bar Tavern in a regulatory investigation by the State of Montana involving an alleged loan from Dick to another family corporation. Tr., pp. 308, 309. Potts also represented Dick in B-Bar Tavern’s bar business for the last 15 years. Tr., pp. 308, 309.
Jack testified that Potts had been Jack’s attorney, Barnes, Inc.’s attorney and attorney for every member of his family and their businesses for quite a few years. Tr., pp. 272-73. Potts testified that he did not obtain written conflict of interest waivers from Dick, Jack, B-Bar Tavern, Barnes, Inc., or PMB, even though they all were his clients. Tr., pp. 93, 94. Dick testified that he did not know that Potts was a lawyer for PMB and a shareholder of PMB when Dick signed the loan documents for his brother Jack in 2008 and 2009. Tr., p.311.
PMB’s president Vukasin testified that Potts provided PMB with legal services in 2008 and earlier, and she knew Potts had a relationship with the Barnes family but did not know that Potts was counsel for the Barnes family. Tr., pp. 124, 125.
Potts also represented Silver City Corporation, the principals of which were the spouses of Dick and Jack, Nancy Barnes and Colette Barnes, respectively. Potts testified that Silver City Corporation owned the liquor license which was operated in the Prospector I on Smelter Avenue owned and operated by Barnes, Inc. Jack disagreed, and testified that Barnes, Inc., owned the liquor license at the Prospector I. Tr., p. 298. Jack testified that he, Dick, and other family members worked with their parents in a family-held bar business, the Red Barn, until Jack acquired his parents’ interests. The Red Barn became the Prospector I. Tr., pp. 257-259, 303.
B-Bar Tavern operates on 10th Avenue South in Great Falls under the name “Prospector II.” Dick worked for his father at the 8 Ball Inn until Dick took over his father’s corporations which owned the 8 Ball Inn and Prospector II. Tr., pp. 303, 304. Dick obtained B-Bar Tavern in a stock trade with his father in 1992 or 1993. Tr., p. 305. Dick took over B-Bar Tavern with an SBA loan owing on it, but paid that loan off in 2004. Tr., pp. 306, 307. He had one other bank loan which he paid *888 off in 2001. Tr., p. 307. Otherwise B-Bar Tavern had no outstanding bank debt or other debt. Tr., p. 308. When PMB opened, PMB’s president was a friend of Dick’s, so he opened bank accounts at PMB, which is located 200 feet from the business location of B-Bar Tavern. Tr., p. 308. Dick has had cancer and has high blood pressure and takes medications. Tr., p. 306.
On July 4, 2007, before the fire at Prospector I, Potts had conversations with Dick and Jack about purchasing the J-Bar T together in some kind of entity, 3 and Dick wanted to take a second mortgage against the J-Bar T after the bank. Tr., p. 95. That transaction, Ex. 41, with financing to be through PMB, never happened. 4 Tr., p. 169. Instead, Jack bought the J-Bar T through Barnes, Inc. Tr., p. 290.
The Prospector I was insured, and Barnes, Inc., received $1.5 million in insurance proceeds for the fire loss. Tr., p. 260. Jack testified that he used the insurance proceeds to pay off the balance from Barnes, Inc.’s purchase of the J-Bar T a few months after the fire, and to pay off a loan secured by his liquor license. Tr., pp. 261, 290.
Barnes, Inc.’s 2008 Loan
Vukasin has been employed by PMB since 2002, and has been PMB’s president and CEO since 2004. PMB has up to 25 employees and five departments, including a lending department. A senior credit officer/executive vice president is in charge of the lending department, but Vukasin was in charge of the lending department in the fall of 2008. Tr., p. 107. A “lender” at PMB is the person whose function is to look at loan documents after they are generated for accuracy, although the senior credit officer also may review loan documents. Tr., pp. 106, 107. Kimberly Hannah (“Hannah”) was one of PMB’s commercial lenders/loan officers in the fall of 2008, and Heather Robbins (“Robbins”) was a loan processor and notary for PMB in the fall of 2008. Tr., p. 106. Vukasin testified that Jack came in to PMB after the fire happened and asked for a line of credit (“LOC”), because he had no income. Tr., p. 170.
Ex. 1 and 2 are loan documents evidencing a $500,000 revolving LOC for Barnes, Inc., dated January of 2008, both signed by Hannah as the lender for PMB. Tr., pp. 107-09. Ex. 1 matured in January 2009. Tr., p. 145. Ex. 3 is a security agreement signed by Jack for Barnes, Inc., pledging the Prospector I on Smelter Avenue as security for the line of credit. Tr., pp. 109, 170. Ex. 6 is a trust indenture pledging the Prospector I as security for the line of credit, signed by Jack. Tr., p. 111. Jack testified that the security for the LOC at that time was just land because there was no building left standing at the Prospector I location on Smelter Ave. Tr., p. 263. The purpose of the $500,000 LOC was for site work at the Prospector on Smelter to finish demolition, prepare for rebuilding, plus some income for Jack’s living expenses. Tr., p. 263.
During this time period, Vukasin testified that she did not think Jack’s purchase of the J-Bar T was finalized yet, and PMB took the Prospector I as security because there was no lien against it and Jack had plans to rebuild the Prospector I. Tr., pp. 170, 171. Ex. 4 is Jack’s personal guarantee for the LOC. Tr., p. 109-10. Jack *889 testified that Dick did not provide a personal guarantee or offer the B-Bar Tavern property as collateral for the original $500,000 loan in 2008. Tr., p. 272.
Ex. 7 is a promissory note in the amount of $1.8 million described as the “construction loan” to Barnes, Inc., for reconstruction of the Prospector I after the fire, dated June 24, 2008 Tr., pp. Ill, 264. Vukasin testified that the $1.8 million was based upon Jack’s consultations with his architect and contractor on what it would take to construct a new Prospector I on Smelter Avenue, and PMB relied on Jack’s bid. Tr., pp. 171, 172. The construction loan matured in February 2009. Tr., p. 145. Ex. 7 is stamped paid on March 25, 2009. Tr.,p. 111.
Ex. 9 is a LOC agreement for the $1.8 million construction loan to Barnes, Inc., and Ex. 10 is the security agreement. Tr., pp. 113-14. Ex. 13 is a trust indenture for the Prospector I on Smelter Avenue as security for the construction loan, and Ex. 14 is a trust indenture pledging the J-Bar T as collateral for the construction loan. Ex. 15 is an assignment of leases and rents signed by Jack for Barnes, Inc., as is Ex. 16. Tr., p. 114. Jack testified that the collateral for the construction loan was the Prospector I land and future building, plus the J-Bar T. Tr., p. 265.
Vukasin testified that the total owed by Barnes, Inc., for the January 2008 LOC and $1.8 million construction loan was $2.3 million. Tr., p. 114. Hannah remained the PMB loan officer for the construction loan. Tr., p. 116. Vukasin testified that Hannah told her that Hannah had asked Jack for a hen on the all beverage liquor license as collateral for the construction loan, but did not get such a lien as Jack refused, and the loan closed secured by real property. Tr., pp. 120,121,122.
Ex. A is a commercial loan application, dated 10-02-2008 and signed by Jack for Barnes, Inc., on 10-8-08, requesting a $850,000 loan. Tr., p. 238. At the bottom of page 1 of Ex. A under “Sources of Repayment” is included “Liquor License.” 5 Hannah distinguished repayment sources from what PMB had as collateral, explaining that the repayment sources just state how a borrower has the ability to repay the loan. Tr., p. 242. Vukasin testified that Hannah prepared Ex. A assuming that the liquor license would be part of the security, but Jack informed her that the liquor license could not be collateral 6 . Tr., pp. 135, 172, 173, 233, 238, 240. Ex. B is a loan application summary for the same loan.
Construction of the new Prospector I building was delayed by a wet spring, and as construction was nearing completion Jack testified that the architect “handed me a bunch of bills in one whack” which went way over the loan amount. Tr., p. 265. Jack testified that he told Vukasin and Hannah that a problem existed. Tr., p. 266. On cross examination Jack answered “No” when asked if he claims that PMB was at fault for any of the cost overruns. Tr., pp. 282-83.
Vukasin testified that Jack phoned her in September or October of 2008 and told her that not enough money remained in the $1.8 million construction loan to complete the Prospector I building. Tr., pp. 116-17, 175. Jack testified that he told Vukasin and Hannah when they were inspecting the building site. Tr., pp. 266, *890 267. Vukasin testified that Jack asked for an additional loan to Barnes, Inc., to compete the building. Tr., pp. 117, 118, 175. Jack did not submit a formal loan application, but informed PMB how much he needed. Tr., pp. 118,175.
At first Jack told PMB that he needed around $500,000 more, but the bills from the architect added up to approximately $800,000. Tr., p. 267. Vukasin testified that PMB was shocked and frustrated when Jack told them he needed another $850,000 to complete construction. Tr., pp. 176, 177. PMB ultimately agreed to lend Barnes, Inc., another $850,000 to complete construction. Tr., pp. 119, 283.
Ex. 17 is the note signed by Jack for Barnes, Inc., for the $850,000, dated 10-8-2008 with a maturity date of 10-08-2011, and is stamped “PAID” as of 3/25/09. Tr., p. 119, 271. Hannah testified that the closing of the $850,000 loan took place at PMB, and Jack, Dick and the notary were at the closing. Tr., p. 206. Jack testified that he did not talk with Potts about the original LOC, construction loan, or the additional $850,000 loan from PMB to finish construction, before he entered into those transactions. Tr., pp. 273, 274.
Vukasin testified that she did not suggest to Jack that Dick provide collateral for the $850,000 in additional funds, but she did inform Jack that he would need to provide PMB with significant additional collateral in order for PMB to lend additional funds to complete construction. Tr., pp. 119, 120, 177, 267, 268, 283, 413. She explained that PMB was not comfortable with the amount of its security at that time to cover an additional $850,000. Tr., p. 413. Jack disagreed about Dick, and Jack testified that Vukasin asked him if Dick would be willing to put up his Prospector II property as additional collateral. Tr., pp. 268, 284. Vukasin testified that the Barnes family suggested offering Dick’s property as collateral. Tr., p. 180.
PMB’s collateral at that time was the land on Smelter Avenue and the J-Bar T. Tr., pp. 172, 284. Vukasin testified that Jack could not use any supposed equity as additional collateral because the Prospector I building was not completed so was not worth close to the appraised value. Tr., p. 177. The fixtures, inventory, and Jack’s equity in his home were not nearly enough to secure another $850,000. Tr., p. 180.
Jack testified that he asked Dick for additional collateral at PMB’s request. Tr., pp. 284, 285. Dick testified that nobody from PMB ever came and asked Dick for security. Tr., p. 335. Dick testified that Jack approached him and told him that Jack was going to fall short, and PMB was not going to allow Jack to open the Prospector I if Jack could not get additional collateral. Tr., p. 314. Dick testified that he was quite surprised that Jack was short because Jack had the insurance proceeds from the fire. Tr., p. 315. Dick testified that he had a disagreement with Jack about the expansiveness of Jack’s building plans for rebuilding Prospector I, and Dick doubted that Jack could make it. Tr., pp. 314, 315, 343. Jack asked Dick to guarantee an additional loan from PMB, and to use Dick’s B-Bar Tavern building as additional security for the October 2008 loan. Tr., pp. 313, 315, 334-35.
Vukasin testified that Jack told her that he had spoken with his brother, and Dick was willing to put up his building as additional collateral for the $850,000 needed to complete construction. Tr., pp. 119, 120, 178. Vukasin testified that it was not unusual for PMB to use another person’s collateral as security for a loan to a different entity, and PMB handled this transaction no differently than in past transactions. Tr., p. 178. Vukasin testified that *891 Dick’s personal guarantee was PMB’s additional collateral, in addition to Plaintiffs building. Tr., p. 413.
Jack testified that he spoke with Dick twice about providing additional collateral to complete construction. Tr., p. 269. He testified that Dick was a little upset that Jack was not able to provide additional collateral on his own. Tr., p. 285. Jack testified that Dick did not ask him about whether the other family liquor licenses had already been pledged as collateral. Tr., p. 286.
Dick did not immediately agree to help Jack. Tr., p. 315. Dick testified that he was not happy about it and told Jack that he was going to have to talk to his wife Nancy and get back to him. Tr., pp. 269, 315. Dick testified that he talked with Potts about whether it was a good idea to help Jack. Tr., p. 315. Potts testified that Dick telephoned him in October 2008, and told him that Dick was going to guarantee PMB’s loan to Barnes, Inc. Potts testified that Dick asked him whether he had to file non-institutional loan paperwork with the State of Montana, and Potts advised him no. Tr., pp. 25-26. 7 .
PMB asked Dick for financial information about B-Bar Tavern and Dick personally to make sure Dick had the capacity to make the payments, and Dick provided it. Tr., pp. 181, 349, 350. Dick testified that he asked Vukasin how Jack had fallen short, and whether she was sure Jack had no more collateral, and she told Dick that Jack did not. Tr., pp. 317, 335. Jack testified that Dick told him at their second conversation that Dick would put up additional collateral to complete construction. Tr., p. 269. Jack agreed that Dick’s agreement to provide additional collateral for the loan benefitted Jack. Tr., p. 285.
Dick testified that he guaranteed repayment of Barnes, Inc.’s loans from PMB in October 2008, and March 2009, and that he signed TI’s in both instances. Tr., pp. 310-311. Dick testified that Potts was his attorney and B-Bar Tavern’s attorney when Dick signed those loan documents. Tr., p. 311.
Ex. 20 is Dick’s personal guaranty of the Barnes, Inc., $850,000 loan dated October 8, 2008. Tr., pp. 77, 123, 136. Ex. 20 provides that Dick guarantees payment of the loan “and any extensions, renewals or replacements thereof.” Dick remembered executing Ex. 20 at PMB in the presence of Vukasin and Hannah. Tr., p. 319.
Vukasin answered “No” and “Absolutely not” when asked if she ever told Dick that he would never have to pay on his personal guarantee. Tr., pp. 183, 407. Dick testified otherwise. He testified that Vukasin told him a few days before he signed his guaranty: “Dick, you’ll never have to pay[;]” but he testified that she never explained why. Tr., pp. 318, 319, 320. Vu-kasin testified that nothing in writing exists from PMB informing Dick that he would not have to pay on his guaranty, or that PMB would not foreclose on the B-Bar Tavern property. Tr., p. 410.
“Dutch Uncle” Talk — October 2008
Vukasin testified that PMB has a policy and practice of advising a guarantor about *892 the obligations and burdens of signing a guaranty, known as a “Dutch Uncle talk,” and that both Vukasin and Hannah followed that policy when Dick signed the guaranty and trust indenture on October 8, 2008. Tr., pp. 137, 138. Vukasin testified:
I told Dick, “You put your collateral, whatever it is, up as collateral for someone else’s loan, you just have to understand what your responsibilities are. If anything starts to go south — if right after, if they don’t make their payments, you, as a personal guarantor, you’re the first phone call that I make if they don’t make payments. If worse comes to worse and everything falls apart, if we have to start a foreclosure action, you could lose your business that you’ve worked your whole life for.”
Tr., p. 179.
In PMB’s case-in-chief Vukasin elaborated that she told Dick before he executed the loan documents in October 2008, and in March 2009: 8
We explained in detail the risks that were associated with putting up collateral or personally guaranteeing any debt for anyone other than yourself, especially when you have no day-to-day management, no decision-making ability. Went into great detail to explain what the risks were that were associated with putting up collateral and/or personally guaranteeing the loan.
Tr., p. 408.
Vukasin testified that Dick told her he was not happy about it, but that “I’ll always help my brother.” Tr., pp. 179, 180.
Hannah testified that she spoke with Dick in October 2008 about the risks:
I told him that if for any reason the primary borrower defaults on the loan, it’s going to affect his credit rating, we will have to come after him for the repayment. And if he’s not able to do that with him pledging his collateral also, along with guaranteeing it, we could foreclose on his property.
Tr., pp. 215-16.
Dick admitted that Vukasin and Hannah explained to him the consequences of signing the guaranty. He testified that they said, “[t]hat if Jack failed in, in making the, the payoff of the, of these loans, that I would be called upon.” Tr., pp. 319, 320. Dick continued: “A few days earlier, she had said I would never have to pay. The day of the signing, Kimberly Hannah took me through what could happen, and— (inaudible, static in microphone) — Laura expanded on it.” Tr., p. 320. Dick testified that Hannah’s testimony about what she told Dick when he executed Ex. 20 “was probably comparable” with his recollection of what she said to him, “although, I don’t know if it all soaked in.” Tr., p. 320, lines 15-16. On cross examination by PMB’s counsel Dick answered “Yes” when asked whether Vukasin or Hannah explained to him that he was providing a personal guarantee and that if Barnes, Inc., failed to pay the loan PMB would come looking to Dick for payment. Tr., p. 334.
Ex. 21 is the trust indenture signed by Dick as B-Bar Tavern’s “Pres” dated 10/8/08, to secure the Barnes, Inc., $850,000 loan. Tr., pp. 77, 123. Dick testified that he signed and initialed Ex. 21 as president of B-Bar Tavern. Tr., pp. 331, 332. Dick testified that Ex. 21 says that the B-Bar Tavern property would be used to guarantee his brother’s $850,000 loan. Tr., p. 320. However, Dick testified, “I *893 didn’t understand that I would be the one that they would come after first.” Tr., p. 332, 342. Dick still thought that Jack had a lot of equity over and above his loans from PMB. Tr., p. 343. But under cross examination Dick admitted that he understood that he would have to repay the loan if Barnes, Inc., did not pay it. Tr., p. 347.
Vukasin testified that Hannah was present when Dick signed Ex. 21 in Hannah’s office, as was Jack, and Vukasin was in and out of the office. Tr., pp. 123, 124, 136-137, 183. Hannah also testified that she was present when Dick executed all the loan documents, and that Dick in fact did sign all the documents. Tr., pp. 221, 222. Dick testified that when he signed Ex. 21 the construction at the Prospector I was not complete. Tr., p. 321.
Vukasin testified that Ex. D is a corporate authorization resolution which PMB required in conjunction with the TI signed by Dick in October 2008. Tr., p. 194. Ex. D is dated 10-8-2008 and signed by Dick as B-Bar Tavern’s president, and by secretary/treasurer Ryan Stoll. Vukasin testified that Dick came in to PMB and signed Ex. D. Tr., p. 194. Vukasin testified that PMB’s purpose in requiring a corporate resolution is to show that all officers of a corporation agree which officers are authorized to sign on behalf of the corporation and what powers they have. Tr., p. 195. The powers listed in Ex. D include “(4) Borrow money on behalf and in the name of the Corporation, sign, execute and deliver promissory notes or other evidences of indebtedness” and “(5) Endorse, assign, transfer, mortgage or pledge ... real estate or other property now owned or acquired by the Corporation as security for sums borrowed.... ” Ex. D.
Ex. 22 is an assignment of leases and rents signed by Dick as president of B-Bar Tavern for the $850,000 completion loan, dated 10-08-2008. Tr., p. 333. Vu-kasin testified that B-Bar Tavern was not renting or leasing its property when Dick signed Ex. 22, but that Ex. 22 is a standard document PMB requires in case the borrower rented or leased its property out. Tr., p. 185. Ex. 22 is notarized by Lori Ann Heinen, another PMB loan processor. Tr., p. 126. Vukasin testified that if a lender is busy, loan documents can be prepared by a commercial lender or the president/CEO. Tr., pp. 126-127.
Vukasin testified that Potts was not present when Dick signed Ex. 21. Tr., p. 124. Potts testified that Dick called him after he signed Ex. 20 and 21. Tr., p. 78. Potts testified that he did not review any of the loan documents from PMB to any of the Barnes entities. Tr., pp. 81-82. With the additional funds Jack was able to complete construction of the Prospector I. Tr., p. 286.
PMB’s Loan Limit Issue.
PMB had another participant in the Barnes, Inc., construction loan which was Teton Bank f/k/a First National Bank of Fairfield. Tr., pp. 33, 101. Vukasin testified that the $1.8 million construction loan to Barnes, Inc., exceeded PMB’s lending limits, so she had talked to First National Bank about participating. Tr., p. 173. She testified that the Fairfield bank had up to a million dollars of the $1.8 million construction loan to Barnes, Inc. Tr., p. 101.
Ex. 8 is the participation agreement on the construction loan signed by PMB and First National Bank of Fairfield, dated 8/24/2008 and stamped paid on 3/25/09. Tr., p. 111. Ex. 8 provides that the participating lender will advance additional principal when the outstanding balance exceeds $1 million, but the participant’s advances will not exceed an additional $800,000. Tr., p. 112.
*894 Potts testified that the participating lender did not want to participate in a “term-out” or “takeout” loan to replace the Barnes, Inc., construction loan. Tr., pp. 34, 80. Vukasin agreed. Tr., p. 113. This created what Potts called a “loan limit issue” for PMB. Tr., p. 34. Potts explained that a state statute exists that says that a bank can only make loans of a certain percentage of its capital to a single borrower. Tr., p. 29. Potts testified that the Barnes, Inc., debt to PMB in 2008 exceeded PMB’s loan limit. Tr., p. 30.
Potts testified that Vukasin told him about the loan limit issue sometime before February 25, 2009, and that the Barnes, Inc., construction loan had to be termed out after construction on the Prospector I building was completed in late 2008. Tr., pp. 32, 33, 38, 46-47. Potts answered “No” when asked if Vukasin presented the loan limit issue to him and asked him for a solution. Tr., p. 80. Vukasin agreed that PMB did not retain Potts for advice on loan limits on any of the Barnes, Inc., loans. Tr., p. 414. Potts testified that he thinks Koontz came up with the debt numbers and got authorization from Jack for the loan amounts because Jack signed the loan documents. Tr., pp. 72, 83.
On page 16 of Ex. 43 are Potts’ billing entries from December 13, 2008 through January 28, 2009, detailing loan limit statutes and rules, telephone calls with Vuka-sin and other PMB personnel and bank examiners. Tr., p. 40. Potts testified that the loan limit issue referred to in Ex. 43 was similar, in that a group of companies owned by Jack would be added together and violate the state law loan limitation, but the bank client referred to in Ex. 43 was not Barnes, Inc. Tr., pp. 40, 41, 76. Potts believed that PMB’s loan limit in late 2008 was $1.2 million. Tr., p. 49.
Vukasin testified that PMB’s lending limit in February 2009 was $1.2 million. She denied that the FDIC criticized PMB about violating its lending limits in 2009, but she admitted that PMB “had a discussion about it.” Tr., p. 165. Plaintiff impeached Vukasin with her deposition testimony from February 27, 2013, in which Vukasin answered “Yes” when asked if PMB had ever been written up for violating the lending limit in 2009. Tr., p. 165. Vukasin denied that had anything to do with the Barnes loans, and she testified that PMB called Potts because the matter was subject to interpretation. Tr., p. 166.
Transfer of Barnes, Inc.’s Properties to New LLC’s.
Potts testified that he was concerned about the loan limit issue acting in his capacity as attorney for Barnes, Inc. Tr., p. 36. He answered “Yes” when asked on direct examination whether he suggested to Jack that Barnes, Inc., divest itself of its real property holdings and restructure. Tr., pp. 31, 35, 36, 37. Jack agreed that Potts came to him in February 2009, and proposed that Jack transfer the Barnes, Inc., properties to new entities. Tr., p. 275. As of January 2009, Barnes, Inc., owned both the Prospector I and the J-Bar T. Tr., p. 33. Dick understood that Barnes, Inc., owned the J-Bar T. Tr., pp. 321, 322.
Potts explained that such transfers were a way to cure the loan limit issue, and that another reason was a way for Jack to begin turning over ownership of his business property 9 to his wife and kids. Tr., p. 31. On cross examination Potts explained that Jack expressed to him an interest in transferring Barnes, Ine.’s real *895 estate assets to other entities as a means of transferring his properties to family members in late 2008. Tr., pp. 60, 85. Jack testified on redirect examination that he never had any such conversations with Potts about estate planning or devising a mechanism to transfer property to his children. Tr., p. 298.
Another purpose Potts described for transferring real estate out of Barnes Inc. was that Barnes, Inc.’s purchase of the J-Bar T on Third Avenue N.W., for $1.2 million, was intended to be temporary because Barnes, Inc., had the insurance proceeds after the fire which Jack could use to buy J-Bar T, instead of borrowing from a bank. Tr., pp. 61, 90, 169, 170. But, Potts testified that Barnes, Inc., is a “C” corporation and in his opinion it is never a good idea to hold real estate in a C corporation. Tr., p. 62. Jack planned to move the Silver City liquor license to the J-Bar T before the State Department of Revenue revoked that license for inactivity, and Barnes, Inc., needed to transfer the J-Bar T to another entity to accomplish that. Tr., pp. 61-62. Potts told Jack that the loan limit issue could be a problem with refinancing the construction loan, which could be solved if three smaller loans were made to three entities. Tr., p. 46.
As part of the restructure described by Potts, the Prospector I property was to be transferred into a LLC called Prospector Land Co., LLC (“Prospector Land”) and the J-Bar T was to be put into a second LLC named Prospector Catering Co., LLC (“Prospector Catering”). Tr., p. 85. Ex. 36 and 37 include the articles of incorporation for the two LLC’s filed with the State of Montana on February 23, 2009. Jack testified that he did not ask Potts to organize those LLC’s, but he admitted that he spoke with Potts about organizing them and Jack approved. Tr., p. 274.
Potts testified that he believed it would be a good idea for Barnes, Inc., to transfer its Smelter Avenue Prospector I property out of Barnes, Inc.’s name, and he verified that by talking with Jack’s accountant Jim Koontz, before he spoke with Vukasin about loan limit issues. Tr., pp. 63, 64-65. Potts needed information from Koontz before deciding how to move the assets out of Barnes, Inc., and how the Barnes, Inc., debt should be split. Tr., p. 68. Jack testified that he spoke with Koontz before the transfers. Tr., p. 281. Jack needed Koontz to address the tax consequences of the transfers of property out of Barnes, Inc., and the legal way of making the payments because of the two liquor licenses involved. Tr., p. 293.
Koontz testified on rebuttal that Potts phoned him before the transfers by Barnes, Inc., to the new LLC’s, and Potts asked him if there would be tax consequences if the J-Bar T property and Prospector I were separated from Barnes, Inc. Tr., pp. 455, 458. Koontz testified that he told Potts that there would be no tax consequences from the transfer of Prospector I, and there would be no tax consequence to Barnes, Inc., from the transfer of J-Bar T so long as it was sold at cost or acquisition price, which he thought was $1,350,000. Tr., pp. 455, 10 456-57, 459-60. Koontz testified that he did not have any conversations with Potts, Jack or PMB about the new LLC’s borrowing from PMB, or about loan amounts. Tr., p. 457.
Potts summarized his reasons for suggesting that Jack transfer Barnes, Inc.’s real estate properties to new entities as *896 the tax issues, 11 the loan limit issue, and Jack’s desire to begin transferring ownership in his business to his wife and children, which could not be done unless the properties were transferred out of Barnes, Inc. Tr., p. 66. The transfers were Potts’ solution. Tr., p. 66. Jack testified that he was not thinking about gifting some of his business interests to his family members. Tr., p. 288.
Potts testified that the restructure by Barnes, Inc., transferring its real estate properties to the new LLC’s was his idea, and not PMB’s. Tr., p. 67. Potts testified that he called Vukasin in January of 2009, before creating the new LLC’s, and asked her if it would help if Jack created the two new entities and the three entities borrowed the entire amount required to finish construction, instead of just Barnes, Inc. Tr., pp. 79, 80, 97. Potts testified that PMB stated that it would pay him the cost of organizing the two LLC’s in the restructure. Tr., pp. 35-36, 38, 85, 98.
Jack testified that Potts told him that he had a conversation with PMB, that PMB wanted Jack to form new LLC’s and it would not cost Jack anything because the Bank would pay Potts’ legal fees. Tr., pp. 276-77. Jack had no objection with Potts proceeding as proposed, because Jack wanted to do what PMB wanted to remain in good standing. Tr., p. 277. However, Jack testified that he could not remember any conversations with Vukasin, Hannah or PMB about the transfers to the new LLC’s before they took place, and that all was done through Potts. Tr., pp. 280-81.
Vukasin testified that she does not remember having a conversation with Potts about the loan limit issues, or offering to pay Potts for the cost of organizing Prospector Land and Prospector Catering. Tr., p. 143. Later, Vukasin testified that Potts was wrong and no one at PMB offered to pay the cost of organizing Prospector Land and Prospector Catering. Tr., p. 156. Potts testified that he could not find any indication in his records that PMB paid his fees and costs for creating the two new LLC’s. Tr., p. 38. Vukasin testified that PMB never received a bill from Potts for his services setting up the new LLC’s, and PMB did not pay Potts for those services. Tr., p. 411.
Vukasin testified that PMB had no discussions with Jack or Potts about the transfers until they called her and told PMB that the transfers were going to happen, but that was not something PMB would get involved in. Tr., p. 167. Jack testified that no one from PMB ever approached him about organizing new LLC’s, and all the information Jack has about PMB’s involvement in setting up the new LLC’s came from Potts. Tr., pp. 287, 288. Jack testified that Potts told him that PMB wanted Jack to transfer Barnes, Inc.’s properties into new entities. Tr., pp. 292, 293. Dick testified at his deposition that Jack told him that PMB suggested the creation of the new LLC’s, but at trial Dick denied that Jack was the source of his information, but Dick believed Jack until he talked to Koontz. Tr., p. 358.
Vukasin testified that PMB did not play any part of determining how Barnes, Inc.’s properties would be structured or valued in organizing Prospector Land and Prospector Catering. Tr., pp. 150, 159. Vuka-sin testified that Jack made the transfers of Barnes, Inc.’s properties to the new LLC’s in 2009, and PMB had no involvement in those transfers. Tr., pp. 166-167, 168,169.
Hannah testified that Jack contacted her and told her that he wanted to combine the *897 LOC and construction loan, and he wanted to take the loan that was guaranteed by Dick and pay that down as much as he could. Tr., pp. 222. Hannah began an analysis along those lines, but did not complete it. She testified that Jack changed his mind and told her a few days later that he created some LLC’s and wanted to break up the way he was doing his loans. Tr., p. 223. Hannah testified that Jack gave her the amounts of loans he wanted, i.e., $1.2 million for the J-Bar T and $1.2 million for the Prospector I. Tr., pp. 223-24. Hannah testified that Dick 12 told her that tax issues determined the amount of the loan secured by the J-Bar T. Tr., p. 224. Jack disagreed. Jack testified that he did not have conversations with Hannah, Vukasin, or Potts, about the dollar amounts of the Prospector Land and Prospector Catering loans. Tr., pp. 281, 282.
Ex. 38 and 39 are warranty deeds executed by Jack on behalf of Barnes, Inc., and articles of incorporation, transferring Barnes, Inc.’s properties to the two new LLC’s, Prospector Catering and Prospector Land on March 24, 2009. Tr., pp. 39, 70, 154, 278. Hannah testified that Jack signed Ex. 38 and 39 at PMB, where they were notarized by Robbins together with all of the other documents signed by Dick and Jack on March 24, 2009. Tr., p. 213. Jack remembered signing the new loans, but he testified that could not remember where it happened. Tr., p. 278. Potts’ office filed Ex. 38 and 39 after Jack signed them. Tr., p. 70.
Potts testified that Jack wanted the J-Bar T property in Prospector Catering and the Prospector I building and land on Smelter Avenue to be in Prospector Land. Tr., pp. 70 13 . Jack testified that Ex. 38 transfers the J-Bar T to Prospector Catering, and Ex. 39 transfers the Prospector I to Prospector Land. Tr., pp. 277, 291. Jack testified that he did not tell Dick that the Barnes, Inc., properties had been transferred to Prospector Catering and Prospector Land. Tr., p. 280. However, Jack testified that Dick determined three or four months after the transfers that they had taken place. Tr., p. 295. Potts testified that he did not ever tell Dick about the restructure of the Barnes, Inc., properties into the two new LLC’s. Tr., pp. 41, 93.
Ex. 43 is Potts’ attorney billing invoices addressed to the attention of Vukasin at PMB. Ex. 43 does not show any charges by Potts to PMB for legal services in March 2009, related to the creation of Prospector Land and Prospector Catering, and Potts testified he did not bill PMB for those services. Tr., p. 75; Ex. 43, pp. 7, 16.
2009 Refinancing
Vukasin testified that PMB always anticipated that there would be some term-out of the three loans to Barnes, Inc., and that it would have to do a takeout loan when the construction loan came due. Tr., pp. 185, 186. Jack agreed. Tr., pp. 286, 294. Vukasin testified that Jack came in and asked to combine all three loans, and later returned and said that he wanted to create the new entities. Tr., p. 187. Jack disagreed, and answered “No” when asked if he approached Vukasin and/or Hannah about combining all the loans into one. Tr., p. 287. Later Jack changed his answer, and testified that he would not dispute that he approached PMB and wanted to combine his loans into one loan. Tr., p. *898 292. But he continued to deny that he told Vukasin or Hannah that he wanted to split Barnes, Inc’s properties into different entities. Tr., p. 292.
Ex. 46 is a loan presentation, dated 2-17-09, which Hannah put together and presented to PMB’s loan committee for the refinancing of three loans in accordance with Jack’s wishes. Tr., pp. 141, 142, 187, 224-225. PMB’s board approved Ex. 46. Tr., pp. 151, 225.
Vukasin testified that Jack requested to combine and refinance his debts to PMB because they were coming close to maturity. Tr., pp. 143-44, 146. Vukasin admitted that the $850,000 loan was to mature in October 2011, so it did not have to be refinanced right away. Tr., p. 145. She also testified that the Barnes, Inc., loan secured by Dick’s guaranty and the B-Bar Tavern building was not in violation of PMB’s loan limit and did not have to be rewritten, but that Jack asked that all three loans be combined. Tr., p. 146.
Asked by Plaintiffs counsel if she agreed that there were lending limit issues in connection with the Barnes, Inc., loans as of 2-17-09, Vukasin did not agree. Tr., p. 142. Later, however, upon examination by PMB’s counsel, Vukasin answered ‘Tes” when asked if the $1.8 million construction LOC would be a lending limit issue. Tr., p. 186. Ex. 46 includes a third bullet point near the top of page 1 that states: “These loans are being refinanced due to maturity on the construction LOC and to satisfy the lending limit issues.” Asked why the $3 million in total loans to Barnes, Inc., was not a lending limit issue Vukasin answered: “I guess it is an issue when you put it that way. It’s something that may have various solutions to, though.” Tr., p. 142. Vukasin testified that with the two new LLC’s created there no longer was a loan limit issue. 14 Tr., pp. 142, 188. On redirect examination by Plaintiffs attorney, Vukasin agreed that there would have been a loan limit issue but for the conveying of properties to Prospector Land and Prospector Catering, but it was one “that I would have had a solution to.” Tr., p. 197.
The second page of Ex. 46 has three (3) “Requests:” # 1 Refinance the $1.2 million construction LOC; # 2 was described by Vukasin as taking the remaining balance on the construction loan for a $100,000 LOC into permanent financing in the amount of $1.2 million; and #3 to take excess funds from the second loan and put it to the Barnes, Inc., loan which was secured by Dick’s guaranty and the B-Bar Tavern property, and refinance that loan over a 20-year term. Tr., p. 148.
Asked about the $1.2 million amount of Request # 1 on Ex. 46, Vukasin testified that Jack requested the $1.2 million amount based on the collateral that was being given as security on the loans, after Jack met with Potts and Koontz, and the amount had nothing to do with the loan limit issue. Tr., p. 149. Hannah testified that the dollar figures for the loan amounts on Ex. 46 were given to her by Jack. Tr., pp. 209, 210.
Vukasin testified that the appraisal value for the completed Prospector I building was $3 million, 15 less the approximate $400,000 value of the liquor license which *899 was included in the appraisal but was not part of PMB’s security, or about $2.6 million in value securing the $1.2 million loan. Tr., pp. 149, 150. Vukasin explained that the amount of the loan Request # 2 on Ex. 46 was $1.25 million, which also was the buy-sell amount for Barnes, Inc.’s purchase of the J-Bar T property. Tr., p. 148.
Ex. E is Barnes, Inc.’s application for the final loan, signed by Jack, reviewed on 2-24-2009 and approved by Hannah, in the amount of $741,041.10. Vukasin testified the loan on Ex. E was approved after the board reviewed Ex. 46, that the final amount was arrived at after $100,000 was applied to the principal balance, and the loan was secured by Dick’s signature and the B-Bar Tavern property. Tr., pp. 147, 188-89. Vukasin testified that the $100,000 was used to reduce the debt which Dick had personally guaranteed and pledged his B-Bar Tavern property for, 16 and dropped the payment to Barnes, Inc., on a monthly basis by $2,000. Tr., pp. 188-89. The loan in the amount of $741,041.10 was advanced on March 24, 2009. Ex. 51; Tr., p. 157.
Hannah testified that, after the loan presentation (Ex. 46) was approved, she called Dick and told him that he needed to come to PMB and sign, that Jack was changing the way PMB was restructuring the loans, and that they were going to pay down the loan guaranteed by Dick by about $100,000. Tr., p. 225. Hannah testified: “I told him that each loan was going to be — one was going to be under Prospector Land and one was going to be under Prospector Catering. They were both going to be $1.2 million, which left him on the Barnes, Inc. loan, reduced to $741,000- — or it was under $100,000.” Tr., p. 225. Dick understood that the loan documents he executed in March 2009 were essentially the same kind of documents he had executed in October 2008 to guarantee and provide security for the same basic loan with a slightly reduced amount. Tr., pp. 354, 355, 356. Dick was still willing to execute the loan documents in March 2009 to help his brother. Tr., p. 356.
Hannah asked Dick for updated tax returns and both personal and business financial information in order to show that Dick had the ability to repay the debt if Jack could not make the loan payments. Tr., pp. 226, 227. Dick understood that PMB requested his financial information to know that he could pay back the loan. Tr., p. 371. Dick thought he had an understanding of Barnes, Inc.’s assets consisting of the Prospector I and the J-Bar T when he signed the loan documents in March 2009, but he testified that he did not know that there had been a change in what Barnes, Inc., owned. Tr., p. 372.
Loans were made to the two new LLC’s, Prospector Land and Prospector Catering, in the amount of $1.2 million apiece, which Potts testified were within PMB’s loan limits. Tr., pp. 46, 82, 83. Vukasin testified that the creation of the new Prospector entities benefitted Dick and reduced Dick’s risk by the amount of $100,000 applied against the obligation Dick had guaranteed. Tr., p. 199.
Ex. 52 is the comment sheet for the Prospector Land loan dated 2/24/09, and states the estimated market value of the security for the $1.2 million loan is $3 million. Tr., p. 87. Potts testified that he could not tell from Ex. 52 how much total debt at the time was encumbering that property. Tr., p. 87. Vukasin testified that the $3 million value on Ex. 52 includes *900 a liquor license, leaving about $2.6 million value for the Prospector I building.
Prospector Land entered into a $1.2 million loan from PMB secured by the completed Prospector I building formerly owned by Barnes, Inc. Tr., pp. 151, 299. This was Request # 1 from Ex. 46. Tr., p. 152. Vukasin admitted that at the time of the loan, Prospector Land had assets worth $1.4 million more than the $1.2 million loan. Tr., p. 155. Vukasin also testified that, after the transfer of Prospector I to Prospector Land, Barnes, Inc., was left with less debt, and she did not know what assets Barnes, Inc., still had. Tr., p. 155. Request # 2 from Ex. 46 became the loan evidenced by Ex. 27, a $1.2 million loan by PMB to Prospector Catering. Tr., p. 152.
Potts testified that as a result of the transfer of Barnes, Inc.’s properties into the two new LLC’s, the debt which B-Bar Tavern had guaranteed was reduced by $100,000. Tr., p. 73. Potts does not believe that the restructure and transfer of Barnes, Inc.’s properties to Prospector Land and Prospector Catering harmed Dick or B-Bar Tavern. Tr., p. 74. Potts testified that he spoke with Dick in October 2008 about executing a new deed of trust for B-Bar Tavern with PMB, but did not talk with Dick about renewing his personal guaranty before March 25, 2009. Tr., pp. 41, 79.
Potts also spoke with Vukasin and Jack in October 2008 and advised PMB that he also represented Dick. Tr., p. 44. Dick called Potts in October 2008 and asked about cosigning the Barnes, Inc., loan, and Potts wanted to make sure that it was a guarantee by Dick instead of cosigning. Tr., pp. 44-45. Potts testified that he did not advise Dick about whether Dick should or should not sign the personal guarantee and TI in March 2009. Tr., p. 79. Potts testified that he was not aware that Dick signed another trust indenture in March 2009. Tr., p. 42. Potts testified that he does not think PMB gave him documents relating to the B-Bar Tavern trust indenture in March of 2009, or that if they sent some documents to him he returned them. Tr., p. 42.
Ex. 23 is the loan to Prospector Land executed by Jack in the amount of $1.2 million dated March 24, 2009. Tr., pp. 127, 278. Ex. 24 is an accompanying security agreement pledging the Prospector I building on Smelter Avenue as collateral for the $1.2 million loan. Tr., p. 127. Ex. EE is the trust indenture pledging the Prospector I on Smelter Avenue to secure the $1.2 million loan in March 2009. Tr., p. 128. Jack signed Ex. EE as member of Prospector Land, and his signature was notarized as such. Tr., p. 235. Robbins signed the notary line on Ex. EE. Tr., p. 445. She testified that she does not have a recollection of Jack signing Ex. EE in 2009. Tr., p.445.
Ex. 27 is the note for a $1.2 million loan to Prospector Catering, dated March 24, 2009, secured by a security agreement, Ex. 28, on the J-Bar T and a liquor license. Tr., p. 129. Jack testified that he signed Ex. 27. Tr., p. 279. 17 Vukasin testified that Jack agreed to give a lien on the Silver City liquor license to secure this loan. Tr., p. 129. Jack denied that PMB approached him about offering that liquor license as collateral for the Prospector Catering loan, and denied that he agreed to obtain his wife’s consent to offer that liquor license as security. Tr., p. 297.
Ex. 29 is the trust indenture signed by Jack for Prospector Catering pledging the *901 J-Bar T building for that loan. Tr., p. 129. Jack’s signature on page 11 of Ex. 29 is not accompanied by his handwritten notation as “Member.” Tr., p. 236. But on page 12 of Ex. 29 the notary indicates that it was acknowledged by Jack as Member. Tr., p. 236. Ex. 30 is a guarantee executed by Jack for Prospector Catering dated March 24, 2009.
Ex. 31 is a loan to Barnes, Inc., in the amount of $741,041.10 signed by Jack on 3/24/2009. Tr., p. 130. Hannah testified that this is the same loan described in Request # 3 on Ex. 46. Tr., p. 209. Ex. 32 is a security agreement signed by Jack on 3/24/09 18 for Barnes, Inc., for the $741,041.10 loan. Tr., p. 130. Vukasin testified that the collateral identified in Ex. 32 is the B-Bar Tavern building owned by B-Bar Tavern, even though Ex. 32 is signed by Barnes, Inc., not B-Bar Tavern. 19 Tr., p. 130. Ex. 33 is another guaranty signed by Jack for Barnes, Inc. Ex. 26 is Jack’s personal guarantee of the Prospector Land note, dated March 24, 2009. Tr., p. 128.
Vukasin testified that she had Dick come in to PMB and sign a personal guaranty in March 2009, after the transfers of properties from Barnes, Inc., to Prospector Land and Prospector Catering. Tr., pp. 155-56. Ex. 34 is a guaranty for the PMB loan to Barnes, Inc., in the amount of $841,041.10, signed by Dick as “Pres” 20 on March 24, 2009. Vukasin testified that Ex. 34 is a guaranty for the $741,000 loan. Tr., p. 130. Hannah testified that Dick is the guarantor of the loan on Ex. 34, and that Dick would be obligated to pay if Barnes, Inc., defaulted. Tr., p. 241. B-Bar Tavern’s expert Richards testified that Dick guaranteed the note. Tr., p. 393. Dick admitted guaranteeing Barnes, Ine.’s loans in October 2008 and March 2009, and that he signed trust indentures. Tr., pp. 310, 311. Dick admitted that he signed Ex. 34 as president, and he testified that he believed he was signing a personal guarantee and was confused when they had him add “president.” Tr., p. 322.
Vukasin testified that both she and Hannah gave Dick the “Dutch Uncle talk” again in March 2009 about the risks and obligations he would be undertaking through his guaranty. Tr., pp. 138, 156, 199. Vukasin testified that she did not tell Dick, at the time he signed Ex. 34 and 35, that the real estate owned by Barnes, Inc., had been conveyed to the two new Prospector entities 21 , but that Hannah told Vu-kasin that Hannah told Dick. Tr., pp. 138, 139. 22 Plaintiff impeached Vukasin with her earlier deposition testimony that no one at the bank told Dick about the restructuring of Barnes, Inc.’s properties. Tr., p. 140. Vukasin later testified that Hannah told her after Vukasin’s deposition was taken that Hannah told Dick about the restructure of Barnes, Inc.’s properties to the new entities. Tr., p. 141.
Potts testified that the total of the three new loans to Barnes, Inc., and the two new *902 LLC’s was $3,141,000, including $741,000 to Barnes, Inc., in March 2009. Tr., pp. 80-90. Potts testified that the equity in Barnes, Inc., and the two new entities in March 2009 was $1.1 million, calculated by adding the $1.2 million value of the J-Bar T and the $3 million value of the Prospector I from Ex. 52, and subtracting the total $3,141,000 total loan. Tr., p. 90. Potts admitted that Barnes, Inc., was left with no real property and no equity. Tr., p. 90.
Ex. 35 — The Trust Indenture (TI)
Ex. 35 is the TI which is the main subject of contention in this adversary proceeding. Ex. 35 is dated March 24, 2009, on page 1, names B-Bar Tavern as Grant- or and conveys B-Bar Tavern’s property as collateral. Dick testified that he signed Ex. 35 and initialed each page. Tr., p. 350-51. Paragraph 18 at page 7 of Ex. 35 provides for payment of Lender’s costs, attorneys’ fees and other expenses in the event of breach, enforcing or collection. Paragraph 25 on page 10 of Ex. 35 provides the applicable law, severability and interpretation. Paragraph 25 provides in pertinent part: “This Security Instrument is complete and fully integrated. This Security Instrument may not be amended or modified by oral agreement.”
Ex. 35 is signed by “Richard J. Barnes” on page 11 of 12 with his handwritten date “3/25/9” next to Dick’s signature. Unlike Dick’s signatures on other documents he did not follow his signature with “Pres” on Ex. 35. Tr., p. 234. Dick testified that he signed Ex. 35, but he insisted that he executed the loan documents at Potts’ office, not at PMB, in the presence of Potts and Dick’s wife. Tr., p. 323. Dick testified that a notary public was not present when he signed the documents. Tr., p. 323.
Hannah testified that she was PMB’s lender who was present at the closing when Dick signed Ex. 35 and the other loan documents, TI’s, and assignments, at PMB on March 24, 2009, along with Jack, Dick, and Robbins. Tr., pp. 211, 221, 222, 227. Hannah testified that Jack and Dick signed all of the closing documents together, and that she explained to them both which document each was signing, one at a time. Tr., pp. 214, 222. Hannah testified that the notary was present when Dick signed the loan documents on March 24, 2009. Tr., p. 227. Jack testified that he could not remember signing documents at the same time with Dick at PMB. Tr., p. 282.
Robbins was the notary public who notarized Ex. 35. She testified that she worked at PMB’s loan department until she left in July of 2012, and that she had been a notary for at least 3 years as of March 2009. Tr., p. 435. Robbins testified that she knows Dick Barnes, but that her standard procedure as a notary, even if she knows a person, is to inspect the person’s driver’s license, write down their information, verify the person is who they say they are, and notarize the document. Tr., p. 437. On cross examination Robbins testified that she does not specifically recall Dick being in front of her in PMB signing Ex. 35. Tr., pp. 444, 445. 23
Under questioning by the Court about the discrepancy between Dick’s handwritten date “3/25/9” on page 11 of Ex. 35 and the March 24, 2009, date of acknowledgment on page 12, Hannah testified first that it was a typo, and when the Court rejected that explanation she testified: “I *903 think is was just, it was just wrong. I think he just wrote it wrong. He didn’t even put the ‘0’ in ‘9.’ I don’t — I just believe he didn’t know exactly what the date was and I didn’t catch it either.” Tr., p. 244. Robbins testified that she does not agree with the “3/25/9” date handwritten by Dick next to his signature on Ex. 35. Tr., p. 441.
On redirect by Plaintiffs counsel Hannah admitted that she is speculating that Dick made a mistake on the date, and she admitted that the other loan documents signed by Dick were generated with the dates already on them. Tr., p. 244. On re-cross examination by PMB’s counsel Hannah testified that if Dick had come into PMB on March 25, 2009, to sign these loan documents, PMB would have reprinted them with the date of March 25, 2009, but that Dick in fact came into PMB on March 24, 2009. Robbins corroborated Hannah’s testimony describing that procedure of PMB to ensure the correct date on loan documents. Tr., p. 438. Robbins testified that her normal procedure was to check to make sure that a document was dated the same day that she notarized it. Tr., p. 439.
Vukasin testified that she was present at PMB when Dick executed Ex. 35 and other documents on March 24, 2009. Tr., pp. 196-97. However, Vukasin testified that she did not actually view Dick sign Ex. 35. Tr., p. 197. Hannah testified that she saw Dick sign and date Ex. 35 on page 11, p. 217. Hannah testified that the $741,041.10 loan was closed at PMB, and that Jack and Dick and the notary were present with her at the closing. Tr., pp. 206, 208. Hannah testified that Plaintiffs counsel was incorrect in suggesting that PMB made a mistake and disbursed the loan too soon, because she testified that she had to have all her loan documents signed before she disbursed the loan on March 24, 2009. Tr., p. 245.
Vukasin admitted that PMB and not Dick prepared Ex. 35. Tr., p. 199. Hannah testified that it is the lender’s responsibility to review documents such as Ex. 35 for their sufficiency. Tr., p. 210. Hannah testified that it was her responsibility to review Ex. 35 for its sufficiency before it was signed. Tr., p. 210. She testified that Ex. 35 was created from information provided to PMB by Jack. Tr., p. 211. Hannah did not deny that Ex. 35 contains errors, but she testified that they were “[vjery minimal errors compared to disbursement of a loan.” Tr., p. 246.
Immediately above Dick’s signature on page 11 of Ex. 35 are the words “Entity Name” followed by the typed-in words “B-Bar Tavern, Inc.” Hannah testified that she knew Dick’s capacity as president of B-Bar Tavern from the corporate resolution which Dick signed at the same time the loan closed. Tr., p. 237.
Hannah testified that when Dick signed the March 2009 loan documents she gave him the “Dutch Uncle” speech again, explaining the risks that Dick would have to pay and his property may be subject to foreclosure if Jack defaulted. Tr., pp. 216, 221. Hannah testified that Dick had a lot of concern about his personal guaranty and pledging his collateral for the Barnes, Inc., loan, and that Dick did not seem happy about it, but was willing to do it for his brother Jack. Tr., pp. 221-22.
In addition, Hannah testified that she told Dick at the closing that the loans had been rearranged into the new LLC’s. Tr., pp. 216, 231. Hannah testified that she told Dick that the collateral on the Prospector Land loan for $1.2 million was the Smelter Avenue property, and the collateral on the Prospector Catering loan for $1.2 million was the J-Bar T property and the *904 liquor license 24 , then she told Dick about the loan that he guaranteed. Tr., p. 231.
Dick disputed Hannah’s testimony. He answered “No” when asked if he had any knowledge, at the time he executed the documents, about the transfers of property from Barnes, Inc., to Prospector Land and Prospector Catering, and that neither Potts, Vukasin or Hannah told him anything about the transfers when he signed Ex. 35. Tr., pp. 323, 324, 326.
Dick testified that he did not learn about the creation of Prospector Land and Prospector Catering until May of 2009 when his wife read about new businesses in the newspaper. Tr., pp. 325, 326. Dick testified that he spoke with Koontz shortly after May 2009 and learned about Jack’s new LLC’s. Tr., p. 358, 359. Dick contacted Jack, and Dick testified that Jack told him that PMB had suggested forming the new LLC’s. Tr., p. 359. However, no one from PMB told Dick that PMB had insisted on the new LLC’s. Tr., p. 359. It still took awhile before it dawned on Dick that he was the only party providing security for the loan by Ex. 35. Tr., pp. 326, 374. Dick testified: “I don’t understand how I ended up being the sole secured party of the $741,000 loan.” Tr., p. 362. He admitted that he was the sole collateral source for the $741,000 loan in October 2008 and again in March 2009. Tr., p. 362.
Page 12 of Ex. 35 is for acknowledgments. The “(Individual)” acknowledgment on the top of page 12 of Ex. 35 is blank. Below that is “(Business or Entity Acknowledgment)” with the name of “B-Bar Tavern, Inc.” as the name of the Business or Entity. Robbins notarized Ex. 35 on page 12 on March 24, 2009. Tr., p. 440. Robbins testified that she would not have notarized Ex. 35 with an incorrect date, and that PMB would have reprinted the loan documents with the correct date, which she verified by looking at the date on her computer screen. Tr., p. 440.
Hannah testified that she reviewed Ex. 35 before it was signed, and that Ex. 35 does not say anywhere that it was signed by Dick in his representative capacity as president of B-Bar Tavern. Tr., pp. 234, 246. Hannah admitted that Dick’s representative capacity should have been indicated on Dick’s signature on Ex. 35. Tr., p. 246. Robbins did not recall why Dick’s name and position are not filled in. Tr., p. 444.
The acknowledgment on Ex. 35 is signed by Robbins on page 12 as notary public with a typewritten date of acknowledgment as the “24th day of March, 2009.” Ex. 35. Dick’s name and representative are not on the acknowledgment page 12 of Ex. 35. Hannah testified that Dick’s name and representative capacity “just got left blank” on the acknowledgment, and should have been included. Tr., pp. 244, 246.
Potts testified that he did not prepare Ex. 35, and he never saw it in 2009. Tr., p. 51. Hannah agreed that Potts did not prepare any of the 2009 loan documents. Tr., p. 227. Hannah testified that she did not talk to Potts about Ex. 35 or the associated promissory note, and she did not send Ex. 35 or any of the loan documents signed on March 24, 2009, to Potts for his review. Tr., pp. 210, 227. Vukasin agreed that Potts did not, on behalf of PMB, prepare or review any of the loan documents for PMB’s loan to Barnes, Inc., and the new LLC’s in March 2009. Tr., pp. 413, 414.
*905 Dick testified that Jack directed him to go to Potts’ office to sign Ex. 34 and 35, and that Jack was not present when Dick signed them. Tr., p. 325. When asked by PMB’s counsel whether he could be wrong in stating that he executed Ex. 34 and 35 at Potts’ office, Dick answered: “After listening to Laura and Kimberly yesterday, excuse me, I tried to place myself, imagined myself being at the bank, and I cannot place myself there. I place myself at Steve Potts’s office.” Tr., p. 356. Asked again whether he could be wrong about signing at Potts’ office Dick answered: “When I — (inaudible, static in microphone) — through my mind, I was at Steve Potts’s office.” Tr., p. 357. PMB’s counsel impeached Dick with his deposition testimony from February 2013 when he admitted that he could have been wrong about signing the loan documents in Potts’ office. Tr., pp. 357-58.
When asked on direct examination: “Did Dick come to your office and sign the trust indenture in March of 2009?” Potts answered “No.” Tr., p. 42. On cross examination Potts testified that Dick was not in Potts’ office on March 24, 2009, or on March 25, 2009. Tr., pp. 51-52 25 . Potts testified that Robbins was never an employee of Potts’ office, and that Robbins never came to his office to notarize documents. Tr., p. 54.
Robbins disagreed with Dick’s testimony that he signed Ex. 35 at Potts’ office. She testified that Ex. 35 had to have been signed and notarized by her at PMB because she has never notarized documents anywhere else. Tr., p. 442, line ll. 26 Dick came to Potts’ office in April 2009 to sign unrelated documents which Potts notarized, but Potts did not have a notary book at the time. 27 Tr., p. 84.
Hannah testified that PMB does not ever allow a borrower to sign loan documents without a notary being present, and PMB does not ever allow a borrower to sign outside of the bank and bring a document in later to get it notarized. Tr., pp. 220-21. Borrowers must sign loan documents in the presence of a notary who verifies their signature. Tr., p. 221. Robbins agreed, and testified that PMB never put her in a situation where people brought in documents that were already signed and asked her to notarize their signatures. Tr., p. 442. Robbins testified that in situations in which PMB had documents for a customer to sign but the customer failed to come in on the prepared date, PMB would re-evaluate and reprint the documents with the date on which the document is signed. Tr., p. 438.
Vukasin testified on direct examination by Plaintiffs attorney that Ex. 35 was to secure the $741,041.10 loan to Barnes, Inc., and that Ex. 31 through 35 were prepared by PMB. Tr., p. 131. Page 2 of Ex. 35, item 4, identifies the “secured debt” as a $741,041.10 debt dated 03-24-2012 owed by “B-Bar Tavern, Inc.” Vukasin admitted that B-Bar Tavern was not indebted to PMB on any loans as of March 24, 2009, including the amount listed at item 4 of Ex. 35. Tr., pp. 131,132. Hannah agreed. Tr., p. 217. The reference to “B-Bar Tav *906 ern” as owing the secured debt at item 4 of Ex. 35 is unquestionably a mistake. Vuka-sin testified that the borrower’s name on Ex. 35 was supposed to be Barnes, Inc., not “B-Bar Tavern” and that was an error on PMB’s processor’s part in utilizing the loan form software program. Tr., p. 191. Hannah agreed that PMB should have listed Barnes, Inc., instead of B-Bar Tavern as the secured debtor on Ex. 35. Tr., p. 230.
Hannah testified that the $741,041.10 loan amount on Ex. 35 is the same amount on the corresponding assignment of leases and rents, Ex. G, executed by Dick on behalf of B-Bar Tavern, loan #4025942. Tr., pp. 229, 230. Hannah testified that B-Bar Tavern is not obligated to repay the loan under the loan documents. Tr., pp. 249-50. On the other hand B-Bar Tavern’s property described at Ex. 35 is PMB’s security available to make sure PMB got paid back, according to Hannah. Tr., pp. 241-42.
Other Loan Documents
Ex. G is the assignment of rents and leases by B-Bar Tavern, signed by Dick but not as “Pres” and dated March 24, 2009. Tr., p. 351. Vukasin testified that Ex. G refers to the $741,041.10 debt that was secured by the B-Bar Tavern property, and Dick’s guaranty, loan #4025942. Tr., pp. 192, 193. PMB asked for the assignment for the same reason as before, to be able to have access to any leases or rent moneys in the event of default. Tr., p. 193. PMB recorded Ex. G in the county records. Tr., pp. 411-12.
Ex. H is same kind of corporate resolution as Ex. D requested by PMB, only dated 3/24/2009, and signed by Dick and Ryan Stoll. 28 Tr., pp. 195, 351, 352. Vu-kasin testified that PMB required B-Bar Tavern provide it with another corporate authorization resolution for the new loan and TI, to make sure that nothing had changed. Tr., pp. 195, 196. Dick testified that he makes the final decision whether B-Bar Tavern enters into any transaction. Tr., pp. 330, 331. Hannah testified that she was present when Dick signed Ex. H, and it authorized Dick to sign on behalf of B-Bar Tavern. Tr., p. 228. Hannah testified that Dick presented himself as the president of B-Bar Tavern when he executed the TI (Ex. 35) and assignment of leases and rents associated with the March 24, 2009, documents. Tr., p. 229. Dick agreed that as president 29 he was authorized to sign any of the loan documents. Tr., p. 352.
Hannah testified that PMB had all of the loan documents, including Ex. 35, signed before PMB distributed the loan proceeds, and the transaction history of Loan 4025942, Ex. 51, shows the proceeds were distributed on March 24, 2009. Tr., p. 218. Hannah testified that PMB has its loan processor review all loan documents to make sure they have all required signatures and initials, and are notarized, prior to funding, and further testified that PMB would not have allowed the loan to be distributed without having all the signatures on the loan documents. Tr., p. 219. Hannah testified that she is one of the persons for PMB who reviews loan documents to make sure they are all executed *907 properly, and only then she disburses the loan. Tr., p. 220. Hannah testified that she would not have released the loan for distribution if all of the signatures were not on the documents. Tr., p. 220.
Jack testified that, as a result of Dick’s guarantee and involvement, Jack benefit-ted by being able to access the loan proceeds. Tr., p. 296. Dick testified that PMB did everything it said it would and fulfilled its obligation to his brother. Tr., p. 347. Vukasin agreed that PMB fulfilled all its obligations to Dick and Jack. Tr., p. 416.
Later Developments & Default
Dick testified that 3 or 4 months after he executed the loan documents of March 2009, he learned that PMB had not taken Jack’s liquor license or equipment, furniture, or fixtures as collateral. Tr., pp. 336, 360, 361. PMB’s counsel impeached Dick with his deposition testimony taken on February 26, 2013, where Dick testified that Vukasin indicated that PMB had absolutely nothing left to get as security from Jack. Tr., pp. 337-338, 369. Later Dick testified at his deposition that Jack told him that Jack had collateralized the J-Bar T property and also all the Smelter property. Tr., p. 339. At trial Dick testified that he was mistaken at the time of his deposition answer. Tr., pp. 339-340. Dick testified that he learned that the Barnes, Inc., liquor license and equipment, and the Silver City liquor license 30 had not been given as security for the loans he guaranteed, as he thought they had been. Tr., pp. 360, 361, 370.
Jack defaulted on the loan payments. Dick testified that neither he nor B-Bar Tavern has paid anything to PMB on account of the guarantee, Ex. 34, or the TI, Ex. 35. Tr., p. 370. Vukasin testified that Dick has never offered to pay any of the loan that was provided to Barnes, Inc. Tr., p. 416. 31 Dick testified that he offered to buy the J-Bar T, but he wanted a release of the TI against B-Bar Tavern in return. Tr., p. 374.
PMB commenced foreclosure proceedings against the B-Bar Tavern based on Ex. 35, and a sale was scheduled to take place on March 3, 2010. Tr., p. 327. PMB foreclosed on Barnes, Inc.’s J-Bar T and the Smelter Avenue Prospector I properties. Those were sold at foreclosure, and Dick testified that there was no equity realized from either sale. Tr., pp. 344, 345. Dick had a second lien position against the Prospector I and attended the foreclosure sale, but he did not make a bid. Tr., p. 346. Under cross examination Dick testified that there was never any excess equity in the Barnes, Inc., property when Dick guaranteed the Barnes, Inc., loans in 2008. Tr., pp. 346-47.
Settlement Conference
A settlement conference was held on December 22, 2010, in the office of Jack’s attorney. Tr., pp. 326, 363. Dick attended the conference with his wife, represented by counsel and his accountant Koontz. Tr., p. 327.
Dick testified that if there was a foreclosure of the B-Bar Tavern building it would be next to impossible for him to continue in operation of the B-Bar Tavern liquor *908 license. Tr., p. 328. Dick’s only other income is from a small rental unit and an ATM business. Tr., p. 328. Dick testified that the rental and ATM income is not sufficient to meet he and his wife’s living needs or retirement needs, and the B-Bar Tavern business is necessary for their living and retirement. Tr., p. 329. Dick testified that, at the settlement conference, he was concerned that if he did not sign the settlement agreement he would lose the B-Bar Tavern building to foreclosure and be left with no income or retirement. Tr., p. 329.
Ex. Q is the Settlement Agreement dated December 23, 2010. Dick admitted that he signed Ex. Q individually and on behalf of B-Bar Tavern, both of which were represented by counsel at the time Dick signed. Tr., p. 363. PMB signed Ex. Q. Dick testified that he signed Ex. Q because he did not have any choice, because if he did not sign foreclosure would take place. Tr., p. 373.
As part of Ex. Q PMB promised not to take any legal action against B-Bar Tavern for nine months, and would vacate the nonjudicial foreclosure proceeding it had commenced. Dick and Yukasin both testified that PMB performed as promised under the Settlement Agreement. Tr., pp. 365, 415. Dick and B-Bar Tavern were granted a second priority lien against the Prospector I property, and PMB supplied a trust indenture to Dick. Tr., pp. 366, 367-68. Dick testified that he knew about all the things which he alleges in this litigation that PMB did inappropriately when he signed Ex. Q. Tr., p. 364.
Paragraph 9 on page 4 of Ex. Q includes a mutual release “of all claims, known or unknown, liquidated or contingent, through the date of this Settlement Agreement, including any claims sounding in tort, contract, in law or in equity.” Vuka-sin testified that PMB would not have signed the Settlement Agreement without the release. Tr., p. 416.
Ex. 25 is a trust indenture dated 1/4/2011, in which Prospector Land gave PMB an additional $200,000 lien on the Prospector I on Smelter Avenue 'through the Settlement Agreement. Tr., p. 128. Ultimately PMB foreclosed on the Prospector I. Vukasin testified that when PMB took back the Prospector I from Prospector Land there was no equity in the property. Tr., p. 167. PMB also foreclosed on the J-Bar T property owned by Prospector Catering, and Vukasin testified there was no equity realized from that sale either. Tr., p. 168.
Ex. 48 is a breakdown of proceeds from the sale of Prospector I prepared by PMB’s CFO Jason Hammer. Tr., p. 160. Vukasin testified that Ex. 48 is a report showing the actual sale of the Prospector I on Smelter Avenue to Mountain View Coop, after PMB bought the Prospector I at a foreclosure sale. Tr., pp. 160-61. Vuka-sin testified that PMB was the only bidder at the foreclosure sale. Tr., p. 161. She testified that B-Bar Tavern had a second-position trust indenture on the Prospector I property, but that B-Bar Tavern did not bid. Tr., p. 168.
Potts testified that his actions related to the restructure of Barnes, Inc., did not harm Dick or B-Bar Tavern. Tr., p. 79. When asked on redirect examination about the harm after Barnes, Inc., was left with no property and no equity after the restructure, Potts testified that if Dick or B-Bar Tavern were asked to perform on Dick’s guaranty or the TI, then Dick and/or B-Bar Tavern would have a claim against Jack, who ultimately owned the equity in the new LLC’s. Tr., pp. 90-91, 92.
Ex. 53 & 50 — More Impeachment of Vukasin.
Plaintiff impeached Vukasin about statements she made in an insurance applica *909 tion which she signed, 32 Ex. 53, compared with Ex. 50, a “Consent Order” entered by the Federal Deposit Insurance Company (“FDIC”) in FDIC-ll-504b (“In the Matter of Prairie Mountain Bank, Great Falls, Montana (Insured State Nonmember Bank”) dated November 9, 2011). Ex. 50 does not involve any of the loans at issue in this adversary proceeding. Tr., p. 429. Ex. 53 includes at approximately the 8th page a “Community Bank Questionnaire” signed by Vukasin on 9/28/11.
PMB marked the answer “No” at question 4 which asks whether there are any threatened or pending lawsuits against the PMB. Tr., p. 421. Vukasin testified that she signed that questionnaire nine months after the date of the Settlement Agreement with B-Bar Tavern and Dick, and there were no threatened or pending lawsuits. Tr., p. 421. However, the FDIC consent order, Ex. 50, is dated November 9, 2011, and Potts’ billing invoice submitted to PMB, Ex. 43, shows on page 2 entries related to the FDIC beginning on September 19, 2011, 33 nine days before Vukasin signed the questionnaire on Ex. 53.
Vukasin insisted that PMB was not under a regulatory proceeding with FDIC at the time she signed the questionnaire in Ex. 53, notwithstanding Potts’ billing records and the FDIC consent order, Ex. 50, entered a few months later. Tr., p. 424. However, question 6 on the questionnaire asks: “Is the insured under any current regulatory orders or proceedings?” Ex. 53. Vukasin checked “No” and she continued to answer “no” at trial, insisting that there was no regulatory proceeding when she answered the questionnaire. Ex. 53; Tr., pp. 424, 425. Vukasin’s testimony is contradicted by Ex. 43, 50 and 53.
Approximately 24 pages later in Ex. 53 is another series of questions to be completed. On a page marked “Page 2 of 4” on Ex. 53 is a paragraph 16 which asks if there have been during the past 5 years any oral or written demands for monetary or nonmonetary relief. Vukasin marked “No” in response to paragraph 16. Tr., p. 425. Plaintiff impeached her again when she testified that she remembered Koontz writing a letter to the Montana banking commissioner complaining about PMB. Tr., p. 425.
Next, paragraph 21 asks if the applicant is operating under a cease and desist order, memorandum of understanding “or similar agreement with any regulatory agency.” PMB marked the answer “No.” Paragraph 25 asks if whether applicant has been alerted to any concentration of credit that warranted a reduction or correction, to which PMB answered “No.” Vukasin signed that application 2 pages later on 10 — 4—11.
Vukasin admitted that PMB had discussions with regulators about a concentration of credit, but she insisted that she was not alerted about a concentration of credit until the consent order came out. Tr., p. 428. As she did when confronted with the loan limit problem, Vukasin tried to explain her denials by testifying: “I didn’t say I didn’t have any idea. I just didn’t agree.... ” Tr., p. 428. Vukasin signed the questionnaire under oath. Tr., p. 429.
DISCUSSION
The facts related above confront this Court with conflicting testimony, and with choices about which witnesses to believe and give weight to with respect to certain *910 critical facts relating to the date and location of the execution of Ex. 35. The Court will make those determinations at the appropriate place below. What is not before the Court in this adversary proceeding are any claims for relief against Potts, who, the evidence shows, at times represented both of the parties in this adversary proceeding. Potts also represented Dick, Jack and his business entities, and other Barnes family businesses, without obtaining written conflict waivers from any of them. Plaintiff attempted to amend the complaint to add Potts to this adversary proceeding, but the Court denied that motion and thus no claims against Potts will be considered, discussed, or decided herein. As for Potts’ representation of the parties, they each voluntarily selected Potts as their attorney of record, and they cannot now avoid the consequences of the acts or omissions of their freely-selected attorney. Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 396-97 , 113 S.Ct. 1489, 1499 , 123 L.Ed.2d 74 (1993).
Objection to Claim
Counts One through Four of the complaint all object to PMB’s Claim 1, and under various theories seek avoidance of PMB’s lien based on the TI, Ex. 35. The Court’s Order approving the Pretrial Order (“PTO”) states that it supersedes the pleadings, and the PTO describes one legal issue as whether Ex. 35 is valid and enforceable as a lien. However, in reviewing the evidence and applying bankruptcy law to the evidence, this Court concludes that PMB does not have an allowed “claim” against B-Bar Tavern in the amount asserted, and PMB’s Claim 1 must be disallowed in its entirety.
A proof of claim that is executed and filed in accordance with the Rules “shall constitute prima facie evidence of the validity and amount of the claim.” Rule 3001(f); see also Garner v. Shier (In re Garner), 246 B.R. 617, 620 (9th Cir. BAP 2000) (“There is an evidentiary presumption that a correctly prepared proof of claim is valid as to liability and amount.”). A claim “is deemed allowed, unless a party in interest ... objects.” § 502(a); Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Electric Co., 549 U.S. 443, 449 , 127 S.Ct. 1199 , 167 L.Ed.2d 178 (2007).
Upon objection, a bankruptcy court “shall determine the amount of such claim ... as of the date of the filing of the petition, and shall allow such claim in such amount, except to the extent that — (1) such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured.” § 502(b)(1). The United States Supreme Court explained:
Section 502(b)(1) disallows any claim that is “unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured.” This provision is most naturally understood to provide that, with limited exceptions, any defense to a claim that is available outside of the bankruptcy context is also available in bankruptcy. See 4 Collier ¶ 502.03[2][b], at 502-22 (explaining that § 502(b)(1) is generally understood to “make available to the trustee any defense” available to the debtor “under applicable nonbankruptcy law” — i.e., any defense that the debtor “could have interposed, absent bankruptcy, in a suit on the [same substantive] claim by the creditor”).
This reading of § 502(b)(1) is consistent not only with the plain statutory text, but also with the settled principle that “[creditors’ entitlements in bank *911 ruptcy arise in the first instance from the underlying substantive law creating the debtor’s obligation, subject to any qualifying or contrary provisions of the Bankruptcy Code.” Raleigh v. Illinois Dept. of Revenue, 530 U.S. 15, 20 , 120 S.Ct. 1951 , 147 L.Ed.2d 13 (2000). That principle requires bankruptcy courts to consult state law in determining the validity of most claims. See ibid.
Indeed, we have long recognized that the “ ‘basic federal rule’ in bankruptcy is that state law governs the substance of claims, Congress having ‘generally left the determination of property rights in the assets of a bankrupt’s estate to state law.’ ” Ibid, (quoting Butner v. United States, 440 U.S. 48, 57, 54 , 99 S.Ct. 914 , 59 L.Ed.2d 136 (1979); citation omitted). Accordingly, when the Bankruptcy Code uses the word “claim” — which the Code itself defines as a “right to payment,” 11 U.S.C. § 101 (5)(A) — it is usually referring to a right to payment recognized under state law. As we stated in But-ner, “[pjroperty interests are created and defined by state law,” and “[ujnless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding.” 440 U.S., at 55 , 99 S.Ct. 914 ; accord, Vanston Bondholders Protective Comm. v. Green, 329 U.S. 156, 161 , 67 S.Ct. 237 , 91 L.Ed. 162 (1946) (“What claims of creditors are valid and subsisting obligations against the bankrupt at the time a petition in bankruptcy is filed is a question which, in the absence of overruling federal law, is to be determined by reference to state law”).
Travelers, 549 U.S. at 450-51 , 127 S.Ct. at 1204-05 ; In re Fitness Holdings Int’l, Inc., 714 F.3d 1141, 1146 (9th Cir.2013).
Plaintiff objects to PMB’s claim on the basis that its lien is invalid under Montana law either as a trust indenture or as a mortgage. The language quoted above from Travelers, 549 U.S. at 450-51 , 127 S.Ct. 1199 , makes the state law governing mortgages and trust indentures applicable to Plaintiffs objection to PMB’s lien. On the other hand, provisions of the Bankruptcy Code also apply.
This Court discussed its longstanding rule governing allowance of claims In re Eiesland, 19 Mont. B.R. 194, 208-09 (Bankr.D.Mont.2001):
A validly filed proof of claim constitutes prima facie evidence of the claim’s validity and amount. F.R.B.P. 3001(f). The Ninth Circuit recently explained the general procedure for allocating burdens of proof and persuasion in determining whether a filed claim is allowable in Lundell v. Anchor Const. Specialists, Inc., 223 F.3d 1035 , 1039 (9th Cir.2000):
A proof of claim is deemed allowed unless a party in interest objects under 11 U.S.C. § 502 (a) and constitutes “prima facie evidence of the validity and amount of the claim” pursuant to Bankruptcy Rule 3001(f). See also Fed. R. Bankr.P. 3007. The filing of an objection to a proof of claim “creates a dispute which is a contested matter” within the meaning of Bankruptcy Rule 9014 and must be resolved after notice and opportunity for hearing upon a motion for relief. See Adv. Comm. Notes to Fed. R. Bankr.P. 9014.
Upon objection, the proof of claim provides “some evidence as to its validity and amount” and is “strong enough to carry over a mere formal objection without more.” Wright v. Holm (In re Holm), 931 F.2d 620, 623 (9th Cir.1991) (quoting 3 L. King, Collier on Bankruptcy § 502.02, at 502-22 *912 (15th ed. 1991)); see also Ashford v. Consolidated Pioneer Mort. (In re Consol. Pioneer Mort.), 178 B.R. 222, 226 (9th Cir.BAP1995), aff'd, 91 F.3d 151 , 1996 WL 393533 (9th Cir.1996). To defeat the claim, the objector must come forward with sufficient evidence and “show facts tending to defeat the claim by probative force equal to that of the allegations of the proofs of claim themselves.” In re Holm, 931 F.2d at 623 .
* * * *
“If the objector produces sufficient evidence to negate one or more of the sworn facts in the proof of claim, the burden reverts to the claimant to prove the validity of the claim by a preponderance of the evidence.” In re Consol. Pioneer, 178 B.R. at 226 (quoting In re Allegheny Int'l, Inc., 954 F.2d 167 , 173-74 (3d Cir.1992)). The ultimate burden of persuasion remains at all times upon the claimant. See In re Holm, 931 F.2d at 623 .
See also Knize, 210 B.R. at 778; Matter of Missionary Baptist Found. of Am., 818 F.2d 1135 , 1143 (5th Cir.1987); In re Stoecker, 143 B.R. 879, 883 (N.D.Ill. 1992), aff'd in part, vacated in part, 5 F.3d 1022 (7th Cir.), reh’g denied (1993).
Thus, the Bank’s Proof of Claim No. 2 is prima facie evidence of the validity and amount of its claim under Rule 3001(f), and the Debtor has the burden of showing sufficient evidence and to “show facts tending to defeat the claim by probative force equal to that of the allegations of the proofs of claim themselves.” Lundell, 223 F.3d at 1039 (quoting Holm). This Court finds that Eric, as the objecting party, has not produced sufficient evidence to cause the burden to revert to the Bank to prove the validity and amount of its claim. Lundell, 223 F.3d at 1039 (quoting In re Consol. Pioneer, 178 B.R. at 226 ).
The analysis under Lundell v. Anchor Const. Specialists was reiterated by the Ninth Circuit In re Los Gatos Lodge, Inc., 278 F.3d 890, 894 (9th Cir.2002). Then in 2006 the BAP, in Litton Loan Servicing, LP v. Garvida (In re Garvida), 347 B.R. 697, 706-07 (9th Cir. BAP 2006), discussed clarification provided by the United States Supreme Court decision, Raleigh v. Ill. Dep’t of Revenue, 530 U.S. 15 , 120 S.Ct. 1951 , 147 L.Ed.2d 13 (2000), regarding the “prima facie evidence” language in Rule 3001(f):
The Supreme Court has clarified that the Rule 3001(f) “prima facie evidence” language does not address the burden of proof in an objection to claim proceeding. Raleigh, 530 U.S. at 22 n. 2, 120 S.Ct. 1951 .
It follows that, after Raleigh , Rule 3001(f) cannot be construed as allocating the burden of proof and, instead, operates merely as an evidentiary presumption that is rebuttable.
The evidentiary presumption of a prima facie case operates to shift the burden of going forward but not the burden of proof. [Garner v. Shier (In re Garner), 246 B.R. 617, 622 (9th Cir. BAP 2000) ]; Diamant v. Kasparían (In re So. Cal. Plastics, Inc.), 165 F.3d 1243, 1248 (9th Cir.1999) (although the creditor bears the ultimate burden of persuasion, the debtor must come forward with evidence to rebut the presumption of validity); 9 [COLLIER ON BANKRUPTCY ¶ 3007.01[1] (Alan N. Resnick & Henry J. Sommer eds. 15th ed. rev. 2006) ] (“once this burden of going forward to overcome the presumption is met, the ultimate burden is on the claimant”). Hence, at best, Litton’s $33,435.46 proof of claim was entitled to *913 the Rule 3001(f) evidentiary presumption, which is capable of being rebutted.
Assuming, without deciding, that the evidentiary presumption did apply, the mechanics of what it takes to rebut the Rule 3001(f) presumption are driven by the nature of the presumption as “prima facie” evidence of the claims validity and amount. Garner, 245 [246] B.R. at 621-22. The proof of claim is more than “some” evidence; it is, unless rebutted, “prima facie” evidence. Id. One rebuts evidence with counter-evidence. Id.
347 B.R. at 706-07 .
In Garvida the objecting debtors satisfied their burden of going forward by proferring evidence at a hearing proving they made payments, and as a result the burden shifted to the creditor to prove the validity and amount of its claim, which it failed to prove when it failed to provide an accounting. 347 B.R. at 702, 707 . In the instant case, PMB filed Proof of Claim No. 1 accompanied by attachments which include Ex. 31, the Barnes, Inc., promissory note dated 3-24-2009, the TI executed by Dick (Ex. 35), and the assignment of leases and rents (Ex. G). Ex. 31 is a promissory note signed by Jack on behalf of Barnes, Inc., and it does not constitute evidence that B-Bar Tavern is liable to PMB for repayment of the loan.
Montana Local Bankruptcy Rule 3001-2 (“Attachments to Proof of Claim”) provides in pertinent part that documents must be attached to any secured proof of claim including “all notes ... and all other information which might be necessary for a trustee or debtor in possession to verify the nature and amount of the debt, and the validity and perfection of the underlying lien.” The note attached to PMB’s Claim 1 is evidence of a debt owed by Barnes, Inc. It is not evidence of a debt owed by B-Bar Tavern. Whether or not PMB is entitled to an evidentiary presumption of the validity and amount of its claim under Rule 3001(f), the Court finds that Plaintiff satisfied its burden to come forward with evidence to rebut the presumption of validity and amount of PMB’s Claim No. 1, and the ultimate burden of persuasion is PMB’s. Garvida, 347 B.R. at 706-07 .
The testimony at trial established without question that Ex. 35 is mistaken in listing B-Bar Tavern at paragraph 4 on page 2 as owing the secured debt. Hannah and Yukasin admitted that it was a mistake for B-Bar Tavern to be listed at paragraph 4 instead of Barnes, Inc., and Hannah testified that B-Bar Tavern is not liable to repay the $741,041.10 loan. No witness testified that B-Bar Tavern is “personally” liable to repay the secured debt on Ex. 35, although Ex. 35 does purport to grant B-Bar Tavern’s property as security for the debt owed by Barnes, Inc.
Given the admitted mistake in Ex. 35 naming B-Bar Tavern as the debtor at paragraph 4, no other writing exists in the evidence, which shows that B-Bar Tavern is personally liable to repay the $741,041.10 loan to Barnes, Inc. “A mortgage does not bind the mortgagor personally to perform the act for the performance of which it is a security unless there is an express covenant to that effect.” MCA § 71-1-104. The evidence admitted at trial is voluminous, but does not include any express covenant by B-Bar Tavern to repay the $741,041.10 loan to Barnes, Inc.
If one expressly agrees to be personally liable for a mortgage debt then one may be subject to a judgment, including a deficiency judgment, under MCA § 71-1-222(2). Fed. Land Bank of Spokane v. Davis, 88 Mont. 463 , 295 P. 253, 254 (1930); Kinyon Inv. Co. v. Belmont State Bank, 69 Mont. 282 , 221 P. 286, 288 (1923). In the instant case no evidence exists in the record that B-Bar Tavern expressly *914 agreed to be personally liable for the debt in Ex. 35, and its inclusion as the debtor at paragraph 4 on page 2 of Ex. 35 is unanimously agreed to be a mistake. Thus, Ex. 35 does not bind B-Bar Tavern personally to repay the $741,041.10 debt. MCA § 71-1-104.
Ex. 34 is Dick’s personal guaranty, as testified by Dick, Potts, Hannah, and Vu-kasin. Ex. 34 does not bind B-Bar Tavern to repay the loan. Dick testified that he could not understand why PMB had him sign Ex. 34 as president, but B-Bar Tavern is not named anywhere on Ex. 34, and the Court finds that Ex. 34 is Dick’s personal guaranty, not a writing binding B-Bar Tavern to repay PMB.
Montana’s statute of frauds requires that an agreement, which by its terms is not to be performed within a year from the making of the agreement, must be in writing or is invalid. MCA § 28-2-903(1)(a). Blome v. First Nat’l Bank of Miles City, 238 Mont. 181, 186 , 776 P.2d 525, 528 (1989). The Barnes, Inc., note, Ex. 31, had a 3-year maturity, so any promise by B-Bar Tavern to be liable to repay that note is invalid unless in writing as required under the statute of frauds. No such writing exists in the record.
MCA § 28-2-903(l)(b) provides that “a special promise to answer for the debt of another” must be in writing or be invalid 34 . Phil-Co Feeds, Inc. v. First Nat’l Bank in Havre, 238 Mont. 414 , 777 P.2d 1306, 1310 (1989); McGowan Commercial Co. v. Midland Coal & Lumber Co., 41 Mont. 211 , 108 P. 655, 657 (1910). The Montana Supreme Court noted that the statute of frauds applies to liabilities based on contract. Phi l-Co Feeds, 777 P.2d at 1311 . The instant case involves bank debt based on contract, so any promise by B-Bar Tavern to be personally liable for Barnes, Inc.’s debt must be in writing or invalid under MCA § 28-2-903(l)(b). Ex. 35 is B-Bar Tavern’s grant of its property as security for the loan, it is not a promise to be personally liable to repay Barnes, Ine.’s debt.
Turning from state law to “certain bankruptcy fundamentals” described In re Smith, 435 B.R. 637, 643 (9th Cir. BAP2010):
“The term ‘debt’ means liability on a claim.” [ 11 U.S.C. § 101 (12)]. “The term ‘claim’ means ... right to payment, whether ... such right is ... [liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed ...] secured, or unsecured....” § 101(5)(A). “The term ‘creditor’ means ... entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor....” § 101(10)(A).
It is settled law that § 101(5)(A) adopts the “broadest possible definition” of claim. In re Johnston, 149 B.R. 158, 161 (9th Cir. BAP 1992).
Notwithstanding these broad definitions, the Court finds that PMB is not a creditor with a right to payment from B-Bar Tavern of the debt stated in PMB’s Claim 1 in the amount stated of $820,923.27 on the petition date. Smith, 435 B.R. at 643 . As stated above, no written evidence exists in the record of a note or other promise by B-Bar Tavern to repay PMB’s $741,041.10 loan to Barnes, Inc. Without a writing such a promise to repay would be invalid under Montana’s statute of frauds.
*915 In the context of a bankruptcy discharge, this Court has noted that a discharge only extinguishes a debtor’s personal liability, and not debtor’s actual debts. In re Britton, 18 Mont. B.R. 302, 303 (Bankr.D.Mont.2000). Here, the evidence shows that B-Bar Tavern has no personal liability to PMB for repayment of the $741,041.10 loan to Barnes, Inc., and that loan is not an actual debt owed by B-Bar Tavern, but rather a debt of Barnes, Inc.
Ex. 35 grants PMB a lien on B-Bar Tavern’s property. “Lien” means “a charge against or interest in property to secure payment of a debt or performance of an obligation.” 11 U.S.C. § 101 (37); Smith, 435 B.R. at 643 . PMB’s lien against B-Bar Tavern’s property is to secure payment of a debt owed by Barnes, Inc., not a debt owed by B-Bar Tavern.
The United States Supreme Court wrote: “A bankruptcy discharge extinguishes only one mode of enforcing a claim — namely, an action against the debt- or in personam — while leaving intact another — namely, an action against the debt- or in rem” against assets. Johnson v. Home State Bank, 501 U.S. 78, 84 , 111 S.Ct. 2150, 2154 , 115 L.Ed.2d 66, 84 (1991); In re Krenzelok, 15 Mont. B.R. 391, 393 (Bankr.D.Mont.1996). 35 Indeed, a secured creditor may stay aloof of the entire bankruptcy process, since valid liens pass through bankruptcy unaffected by the discharge. Dewsnup v. Timm, 502 U.S. 410, 418 , 112 S.Ct. 773, 778 , 116 L.Ed.2d 903 (1992); Farrey v. Sanderfoot, 500 U.S. 291, 297 , 111 S.Ct. 1825, 1829 , 114 L.Ed.2d 337 (1991); Krenzelok, 15 Mont. B.R. at 393.
PMB did not stay aloof from this Chapter 11 case, but filed Proof of Claim 1 asserting a secured claim against B-Bar Tavern in the amount of $820,923.27 plus interest, charges and attorney’s fees based upon the promissory note signed by Jack for Barnes, Inc., and Ex. 35. The evidence shows and this Court finds and concludes that PMB has failed its ultimate burden of persuasion. No evidence exists that B-Bar Tavern is personally liable for the $741,041.10 note, and therefore this Court disallows Proof of Claim No. 1 because it is based on the $741,041.10 debt owed by Barnes, Inc., to which PMB added interest, late charges, costs and attorney’s fees.
One small component of Claim 1, $2,770.00 on the attachment, includes costs and attorney’s fees due under the provisions of Ex. 35 which entitle the prevailing party to attorney’s fees and costs. If the TI survived the Plaintiffs other challenges to its validity, PMB might be entitled to file an amended Proof of Claim for those costs and attorney’s fees under Travelers . However, below the Court concludes that the TI shown on Ex. 35 is invalid under Montana mortgage and acknowledgment statutes, so the attorney’s fee and costs provisions of the TI do not survive.
Contentions of the Parties.
Plaintiff B-Bar Tavern contentions include that the B-Bar Tavern TI does not identify the party whose debt is being answered for and thus is insufficient to satisfy the statute of frauds; that the TI was executed without reference to Dick Barnes’ representative capacity so is not binding on the corporation B-Bar Tavern; that the notary’s execution of the certificate of notarial act that did not identify the *916 acknowledger nor his representative capacity does not satisfy Montana’s mortgage statute; and that the statutory requirement that hand-written words prevail over typed words, together which require the conclusion that the TI, Ex. 35, was signed by Dick on March 25, 2009, subsequent to disbursement of the Barnes Inc. loan on March 24, 2009. Plaintiff further argues that the parol evidence rule prevents the TI from being interpreted to refer to a Barnes Inc. debt, and that PMB is not entitled to equitable relief of reformation because PMB failed to disclose fundamental changes in the assets of Barnes Inc, “clandestinely involving its mutual attorney” Potts, and acting in a manner that benefitted all parties but Plaintiff.
This Court first will address Plaintiffs contentions regarding Montana’s mortgage and acknowledgment statutes, and although some overlap occurs the Court will discuss PMB’s counterclaim for reformation separately afterward.
The Trust Indenture — Ex. 35
Plaintiff contends that the March 2009 TI contains numerous defects, any one of which renders the TI ineffective due to its failure to comply with the requirements of Montana’s Small Tract Financing Act and mortgage statutes. Plaintiff argues that B-Bar Tavern was not indebted to PMB, and no “Secured Debt” of B-Bar Tavern to PMB existed. Because of the defects, Plaintiff contends that it has the power under § 544(a) as a judgment lien creditor to avoid the TI.
PMB contends that Plaintiff is bound by the TI because it waived all claims against the validity and enforcement of the TI in the Settlement Agreement, and that the TI can be reformed to reflect the intention of the parties. PMB argues that the Plaintiff bears the burden of proof and has failed to satisfy its burden, while PMB fully performed under the TI and all related documents in October 2008 and March 2009 loans, that Plaintiff has not taken the steps required for rescission 36 of the TI, and therefore Plaintiff is bound by the TI.
Both sides argue this Court’s decision in Brandon v. GMAC Mortgage, LLC (In re Simmons), 2012 WL 1899375 (Bankr.D.Mont.2012), aff' d., 2012 WL 5304701 (D.Mont.). See, e.g., In re B-Bar Tavern Inc., 497 B.R. 84, 95 (Bankr.D.Mont.2013). The district court in affirming Brandon noted that a trust indenture which does not conform with the Small Tract Financing Act (the “Act”) is considered to be a mortgage and is subject to all laws relating to mortgages on real property under MCA § 71-1-321. Brandon, 2012 WL 5304701 at *2. Section 71-1-305 also provides that a trust indenture is deemed to be a mortgage and is subject to all laws relating to mortgages on real property except to the extent that such laws are inconsistent with the provisions of the Act. The parties do not argue about inconsistencies between the Act and ordinary mortgage statutes.
PMB cites MCA § 71-1-304 for the proposition that a grantor can grant a hen on real property to secure a loan to a party other than a grantor. Under the Act, MCA § 71-1-304(1) provides that a trust indenture “may be made to secure the performance of an obligation of a grantor or any other person named in the indenture to a beneficiary....” (Em *917 phasis added). See Citizens State Bank v. Ryan, 243 Mont. 23, 26 , 792 P.2d 1116, 1118 (1990). In interpreting Montana’s statutes, the Court looks first to the plain meaning of the words used in the statute. Pilgeram v. Greenpoint Mortg. Funding, Inc., 2013 MT 354, ¶ 15 , 373 Mont. 1 , 313 P.3d 839 ; In re Maynard, 2006 MT 162, ¶ 5 , 332 Mont. 485 , 139 P.3d 803 . The Montana Supreme Court explained that “we first look to the plain meaning of the statute’s words. [Williamson v. Mont. Pub. Serv. Comm’n, 2012 MT 32, ¶ 36 , 364 Mont. 128 , 272 P.3d 71 ]. If the language is clear and unambiguous, we will not resort to other means of interpretation. Williamson, ¶ 36 (citing Rocky Mt. Bank v. Stuart, 280 Mont. 74, 80 , 928 P.2d 243, 246-47 (1996).” Pilgeram, 2013 MT 354, ¶ 15 , 373 Mont. 1 , 313 P.3d 839 ). Applying the plain meaning of MCA § 71-1-304(1), that statute clearly provides that a trust indenture such as Ex. 35 may be made to secure the performance of “any other person named in the indenture,” even if the grantor is not the obligor for the underlying debt such as in the instant case. Ex. 35, however, nowhere names Barnes, Inc., as the obligor. Instead it mistakenly names B-Bar Tavern as the obligor of the secured debt at paragraph 4 on page 2. As such, Ex. 35 does not comply with MCA § 71-1-304(1).
The regular mortgage statutes include MCA § 71-1-201 (“What real property may be mortgaged — debts secured”), which provides in pertinent part that property may be mortgaged “to secure existing debts, to secure debts created simultaneously with the execution of the mortgage,.... ” Montana’s rule of statutory interpretation is to apply the plain meaning of a statute, which means simply to ascertain and declare what is in terms or in substance contained in the statute, and not to insert what has been omitted or omit what has been inserted. Clouse v. Lewis and Clark Cnty., 2008 MT 271, ¶ 50 , 345 Mont. 208, 220, ¶50 , 190 P.3d 1052, ¶ 50 ; State v. Martel, 273 Mont. 143, 150 , 902 P.2d 14, 19 (1995). Nothing in MCA § 71-1-201 requires that the debt created be owed by the mortgagor in order for property to be mortgaged to secure a debt. Instead, the plain language of MCA § 71-1-201 allows the mortgage of any interest in real property to secure debts created simultaneously with the execution of the mortgage. Under MCA § 71-1-201, Ex. 35 would be valid as a mortgage if it is executed simultaneously with the debt evidenced by Ex. 31 on March 24, 2009.
However, a dispute exists between the parties about the date Dick executed Ex. 35. His handwritten signature on page 11 of Ex. 35 states “3/25/9” while the printed dates on page 1 and the acknowledgment on page 12 state March 24, 2009. MCA §§ 1-4-105 and 28-3-205 provide that when an instrument contains partly written words and partly language in pre-printed form, the written words control the pre-printed form. Matter of Estate of Lahren, 268 Mont. 284, 288 , 886 P.2d 412, 414 (1994). Therefore, subject to PMB’s counterclaim for reformation, Dick’s handwritten date of “3/25/9” controls and Ex. 35 does not comply with the requirement of MCA § 71-1-201 that the mortgage secure a debt created simultaneously with the execution of the mortgage, because the debt on Ex. 31 was created the day before Dick’s handwritten date of March 25, 2009, on Ex. 35.
A third mortgage statute provides a suggested “Form of mortgage.” MCA § 71-1-204 provides in pertinent part: “That the mortgagor mortgages to the mortgagee (here describe the property), as security for the payment to the mortgagor of ... dollars, on (or before) the ... day of ..., in the year ..., with *918 interest on that amount (or as security for the payment of an obligation, describing it, etc.).” (Emphasis added). This Court believes, it goes without saying, that the obligation must be described accurately. Ex. 35 does not describe the Barnes, Inc., obligation on the debt accurately because it states that the secured debt is owed by B-Bar Tavern on paragraph 4, not by Barnes, Inc.
Plaintiff argues that a trust indenture under MCA § 71-1-204 must contain a description of the obligation for which the mortgage is security. PMB responds that MCA § 71-1-204 states that a mortgage “may” be made in a suggested form, and that Montana law requires only that a mortgage be in writing and to state the amount of future advances or total indebtedness. MCA § 71-1-206(1).
MCA § 71-1-206(1) does provide that future advances or total indebtedness “must be stated in the mortgage[,]” but it does not relieve PMB of the obligations of the other mortgage statutes to describe the debt. Basic principles of statutory interpretation found at Huether v. Dist. Ct., 2000 MT 158, ¶ 28 , 300 Mont. 212, 220, ¶ 28 , 4 P.3d 1193, 1198, ¶28 (concurring/dissenting opinion) include:
When a statutory scheme has several provisions, a construction is to be adopted which will, if possible, give effect to all. Section 1-2-101, MCA. A statute dealing with a particular subject will control over a general statute which is inconsistent with it. Section 1-2-102, MCA. And finally, an interpretation which gives effect to a statute is preferred to one which would make it void. Section 1-3-232, MCA, and Mead v. MSB, Inc. (1994), 264 Mont. 465, 474 , 872 P.2d 782, 788 .
PMB’s interpretation MCA § 71-1-206(1) would make void the requirements of the other mortgage statutes that a debt be accurately described in a mortgage. The requirement of MCA § 71-1-206(1) that future advances and total indebtedness be stated in a mortgage does not negate what this Court considers a requirement that the debt be accurately described.
PMB cites Swords v. Occident Elevator Co., 72 Mont. 189, 192 , 232 P. 189 (1924) for the proposition that mortgage statutes are to be liberally construed with respect to real estate mortgages, and that leads to the conclusion that the TI is valid. The reference in Swords is to the predecessor of MCA § 1-2-103, which continues to state simply that the common law rule, that statutes in derogation thereof are to be strictly construed, has no application to Montana’s statutes, and “their provisions and all proceedings under them are to be liberally construed with a view to effect their objects and to promote justice.” MCA § 1-2-103. PMB misinterprets the meaning of this general provision for statutory construction. MCA § 1-2-103 is not particular to mortgage statutes, and it cannot cure PMB’s failures to correctly describe the debt in Ex. 35 and otherwise comply with the mortgage statutes. Rather, by its terms MCA § 1-2-103 specifically states that the statutes “establish the law of this state respecting the subjects to which they relate, and their provisions and all proceedings under them are to be liberally construed with a view to effect their objects and to promote justice.” Plaintiff is not attempting to impose any common law rule, but rather Plaintiff argues that PMB failed to comply with the statutory requirements under the mortgage statutes and Act. Liberal construction cannot cure PMB’s admitted mistakes and failures to accurately complete execution of Ex. 35 in accordance with Montana’s mortgage statutes.
*919 Plaintiff argues that the debt of B-Bar Tavern identified in Ex. 35 does not exist, and cites Hone v. Carlson, 104 Wash.App. 1008 , 2001 WL 27382 (Wash.App. Div. 3) for the rule that “[A] mortgage cannot exist without a debt, and that debt must be identified and the amount fixed with certainty.” (quoting Koster v. Wingard, 50 Wash.2d 855 , 314 P.2d 928 (1957)). PMB argues that Hone v. Carlson is an unpublished decision which should not be cited as authority. The Court agrees. Montana’s statutes and case law are sufficient for this decision without the need for the Court to refer to unpublished decision from another state decided on that state’s statutes.
Plaintiff cites Jones v. Hall, 90 Mont. 69, 76 , 300 P. 232, 234 (1932) that a mortgage cannot exist beyond the life of the debt or obligation it is given to secure. Since the “Secured Debt” identified in Ex. 35 as owed by B-Bar Tavern does not exist, Plaintiff argues that Ex. 35 fails to provide the debt information required by statute and no default can occur of the nonexistent Secured Debt. Hence, Plaintiff argues, the identification of a non-existent Secured Debt in paragraph 4 of Ex. 35 invalidates the TI. For purposes of Montana’s mortgage statutes, the Court agrees.
Plaintiff argues that the uncertainty in the TI should be construed most strongly against the party who caused the uncertainty to exist, MCA § 28-3-206, and that party is PMB. The Montana Supreme Court has noted that MCA § 28-3-206 is not a peremptory rule requiring that a non-drafting party prevail in all cases, but rather is a rule of interpretation that requires a court to interpret the contract “most strongly” against the drafting party. Travelers Ins. Co. v. Holiday Vill. Shopping Ctr. Ltd., 280 Mont. 217, 224 , 931 P.2d 1292, 1296-97 (1996).
PMB argues that the amount of the loan stated on the TI, the interest rate, maturity date; the assignment of leases and rents also executed by Plaintiff on March 24, 2009, identifying the PMB loan number; Dick’s personal guaranty and his testimony that the March 2009 documents evidenced a continuation of the same transaction, taken together compel the conclusion that the TI is valid. PMB cites MCA § 28-3-203 as support for taking several contracts between Plaintiff and PMB together as one transaction, viz., the loan to Barnes, Inc., and the security granted for that loan by Plaintiff. PMB argues that the mutual intention of the parties should be ascertained from the documents and trial testimony under MCA § 28-3-301, and that the mutual intention is readily ascertainable that Dick knew the two TI’s he signed in PMB’s favor were to be security for a loan to Barnes, Inc. PMB further argues that the circumstances surrounding execution of the TI should be referenced under Montana’s rule of construction MCA § 28-3-402, and those circumstances compel the conclusion that the TI was to secure PMB’s loan to Barnes, Inc.
Plaintiff cites the parole evidence rule as reason to preclude PMB from offering any evidence of the parties’ intent or meaning of “Secured Debt” on the TI, Ex. 35. Plaintiff cites the integration clause at paragraph 25 on page 15 of Ex. 35 which provides: “This security agreement is complete and fully integrated.” Plaintiff cites Montana’s parol evidence rule, MCA § 28-2-904, and the Montana Supreme Court’s decision in Richards v. JTL Grp. Inc., 2009 MT 173, ¶ 16 , 350 Mont. 516, 522 , 212 P.3d 264 , that an integration clause expresses the intention that the writing represents a complete and final agreement barring consideration of evidence other than the terms of the writing.
*920 PMB argues that JTL is inapplicable because it held that oral terms excluded from the written agreement were not part of the parties agreement based on the parole evidence rule, while the instant case involves a mutual mistake in the TI, not a claim that additional oral terms should be added to the trust indenture. PMB admits that the TI reflects a mistake in referencing the secured debt as that of B-Bar Tavern rather than Barnes, Inc., but PMB argues that allowing Plaintiff to take advantage of that mistake to invalidate the TI instead of rectifying the mistake is not legally or equitably appropriate.
In JTL the Montana Supreme Court noted that as a general rule the parol evidence rule “precludes the admission of extrinsic evidence of an unambiguous integrated writing in any situation involving parties to the instrument when the rights and duties created by the document are the dispositive issue.” JTL, at ¶ 16, quoting In re Marriage of Olson, 2005 MT 57, ¶ 17 , 326 Mont. 224 , 108 P.3d 493 . The court noted that the intention that a writing represents a final and complete agreement is often expressed as an integration clause. JTL, at ¶ 16, quoting In Brimstone Min., Inc. v. Glaus, 2003 MT 236, ¶ 46 , 317 Mont. 236 , 77 P.3d 175 . An exception is found at MCA § 28-2-905(l)(a) when a mistake or imperfection of the writing is put into issue by the parties, such as in the instant case, which will be discussed below. For purposes of the Act and mortgage statutes, this Court will construe Ex. 35 against the party that drafted it pursuant to MCA § 28-3-206, and will enforce the integration clause which PMB included in Ex. 35 and bars extrinsic evidence. The Court finds that Ex. 35 violates the Act and mortgage statutes by incorrectly identifying B-Bar Tavern as owing the “Secured Debt” at paragraph 4.
Representative Capacity
Plaintiff contends that the TI is executed by Dick Barnes personally, not in a representative capacity for B-Bar Tavern, and that the corporate resolution, Ex. H, did not authorize Dick to execute the TI except as security for B-Bar Tavern debt. Page 16 of Ex. 35 plainly shows that Dick did not sign “Pres” after his signature like he did on other loan documents in the record.
Plaintiff argues that Dick was not authorized to execute a TI or give security for the debt of another entity. The evidence, however, shows that Dick is president and sole shareholder of B-Bar Tavern. He intended to sign Ex. 35 to help his brother, and no evidence exists in the record of any other entity or person with authority to prohibit Dick from pledging B-Bar Tavern’s property as security for Barnes, Inc.’s debt.
Plaintiff cites Baker v. Power, 7 Mont. 326, 328 , 16 P. 589 , 590 (1888) and Alpine Bank v. Moreno (In re Moreno), 293 B.R. 777, 780, 785 (Bankr.D.Colo.2003), as support for its contention that since Dick Barnes signed the TI individually, and not in his capacity as president of B-Bar Tavern, that B-Bar Tavern did not execute the TI. PMB argues that Dick’s testimony establishes that he executed the TI in October 2008 in his capacity as B-Bar Tavern’s president, and that he was authorized by the corporate resolutions to sign documents which PMB presented to him in October 2008 and March 2009 as a continuation of the same transaction. Tr., pp. 330-32, 352. As above, the parole evide

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/8496856. Public record. Not legal advice.