Steven Christopher Potts v. Gary Guilford

United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
No. 11-6057
In re: *
*
Steven Christopher Potts, *
*
Debtor. *
*
Steven Christopher Potts, * Appeal from the
* United States
Debtor - Appellant, * Bankruptcy Court for the
* Western District of Missouri
v. *
*
Gary Guilford, *
*
Creditor - Appellee. *
Submitted: April 12, 2012
Filed: April 26, 2012
Before KRESSEL, Chief Judge, SCHERMER and NAIL, Bankruptcy Judges
SCHERMER, Bankruptcy Judge

The debtor, Steven Christopher Potts (“Potts”), appeals an order of the United
States Bankruptcy Court for the Western District of Missouri, directing that a third1
party, Gary Guilford (“Guilford”), receive a portion of a check made payable jointly
to Guilford and Potts for rent of Potts’s property. We have jurisdiction over this2
appeal from the final order of the bankruptcy court. See 28 U.S.C. § 158(b). For the
reasons set forth below, we affirm.
ISSUE
The issue on appeal is whether Guilford had a right to funds for rent of Potts’s
property when the rent check was made payable jointly to Potts and Guilford. We
hold that Guilford had an interest in the funds by virtue of a contract between Potts
and Guilford and, therefore, Guilford was entitled to the portion of the funds that the
bankruptcy court required Potts to remit to him.
BACKGROUND
In 2008, Potts filed a petition for relief under Chapter 12 of Title 11 of
the United States Code (the “Bankruptcy Code”), and his plan was confirmed later
that year.
When Potts was unable to make certain payments to his creditors, entities
formed by Guilford (the “Guilford Entities”) purchased secured debt owed by Potts.
Potts and Guilford entered into an April 15, 2010 agreement (the “Agreement”) that
required “[a]s consideration for Guilford’s accommodations and the costs incurred
The Honorable Jerry W. Venters, United States Bankruptcy Judge for1
the Western District of Missouri.
The bankruptcy court’s order addressed motions filed in both Potts’s2
case and in his parents’ bankruptcy case, and was entered in both cases. The
notice of appeal before us was filed only by Potts and, therefore, it concerns only
the order entered in his case. We omit any references to Pott’s parents, their
property or the check for rent on Potts’s parents’ property.
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by Guilford in purchasing the debts. . . ., as well as payment of a finder’s fee. . . ,”
Potts to execute a promissory note to Guilford for the amount of $111,800, plus
interest (the “Fee”), to be secured by a deed of trust and security agreement. Payment
of the Fee was to be made in “four equal annual installments consisting of principal
and accrued interest, and shall be due and payable in full, with accrued interest and
costs, on or before March 31, 2014.” The bankruptcy court found, based on a
handwritten note in the margin of the Agreement, that the annual installment payment
of principal and interest due from Potts to Guilford for the Fee was $34,950.88. Potts
never executed a promissory note, security agreement or deed of trust as required by
the Agreement.
The Agreement provided in Paragraph 1.q., in pertinent part, that:
q. In the event Potts . . . lease[s] any of [his] real property, the rent
payment must be issued jointly to the leasing party and Guilford
[and the Guilford Entities]. In the event Potts . . . [is] current in
[his] obligations to Guilford [and the Guilford Entities], the
leasing party shall be entitled to retain the full amount of the rent
payment. In the event Potts . . . [is] not current in [his]
obligations to Guilford [and the Guilford Entities], Guilford [and
the Guilford Entities] shall be entitled to retain sufficient funds
from the rent payment to cure the defaults, with the balance, if
any, to be paid to the leasing party.
In 2010, Potts entered into a lease agreement for part of his real property with
Strcue, Inc. (“Strcue”). In January 2011, Strcue issued its $54,000 annual rent check
jointly to “Steve Potts & Gary Guilford, Manager.” The check was originally given3
to Guilford. Guilford gave the check to his attorney and ultimately, Guilford’s
attorney delivered the check to Potts’s attorney.
The check was made payable to “Steve Potts & Gary Guilford,3
Manager.” Potts has not argued that Guilford was anything other than a joint
payee on the check.
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In May 2011, Potts sold his property and paid off the secured debt that the
Guilford Entities had purchased. But by May 2011, Potts had defaulted in his
obligation to pay Guilford the annual installment on the Fee. In June 2011, Potts filed
a motion asking the bankruptcy court to issue an order requiring Guilford to show
cause why he should not be required to endorse the rent check from Strcue. In July
2011, the bankruptcy court held a hearing on Potts’s motion. Neither Potts nor
Guilford had endorsed the Strcue check at the time of the hearing. The bankruptcy
court found that, at the time of the hearing, Potts had failed to pay Guilford the 2011
installment payment of the Fee in the amount of $34,950.88. Ultimately, the court
entered an order directing Guilford to endorse the Strcue check and, with respect to
division of the proceeds, it ordered that “Gary Guilford [was] to receive $34,950.88,
said amount representing the March 2011 payment due under the April 15, 2010
Agreement in evidence. . . .”
STANDARD OF REVIEW
We review the bankruptcy court’s findings of fact for clear error, and its
conclusions of law and conclusions regarding mixed questions of law and fact de
novo. DeBold v. Case, 452 F.3d 756, 761 (8th Cir. 2006) (citation omitted).
DISCUSSION
Guilford is entitled to $34,950.88 of the Strcue rent check based on the plain
language of the Agreement. The issue in this case is one of state contract law, and
the Agreement states that it “shall be governed by and construed in accordance with
the laws of the State of Missouri.” In Missouri, the intent of the parties governs
interpretation of a contract and, where the contract is not ambiguous, the parties’
intent is determined from the language of contract itself. See DeBaliviere Place Ass’n
v. Veal, 337 S.W.3d 670, 676-77 (Mo. banc. 2011) (citation omitted). “The terms of
a contract are read as a whole to determine the intent of the parties and are given their
plain, ordinary, and usual meaning.” Dunn Indus. Group, Inc. v. City of Sugar Creek,
112 S.W.3d 421, 428 (Mo. banc. 2003) (per curiam) (citation omitted).
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By its plain language, Paragraph 1.q. of the Agreement allows Guilford to
retain funds from the Strcue rent check to cure any of Potts’s defaults on his
obligations to Guilford. Potts did not make the year 2011 installment payment of
$34,950.88 for the Fee owed to Guilford under the Agreement and, therefore, Potts
was in default of his obligations to Guilford at the time of the hearing. Guilford is a
joint payee on the Strcue check and, therefore, there is no doubt that Guilford holds
an interest in $34,950.88 of the funds.
Potts argues that since Guilford surrendered the Strcue check when Guilford’s
attorney delivered the check to Potts’s attorney, Guilford is rendered an unsecured
creditor. As an unsecured creditor, Potts argues, Guilford should receive only his pro
rata share under Potts’s Chapter 12 plan. We disagree with Potts’s analysis. Whether
Guilford has a perfected security interest in the Strcue check is irrelevant because
Guilford is a payee, entitled to $34,950.88 under the plain language of the
Agreement.
CONCLUSION
For the reasons set forth herein, we AFFIRM the decision of the bankruptcy
court.
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