Unpublished Disposition, 917 F.2d 1307 (9th Cir. 1990)

MEMORANDUM^* 

SUMMARY

Robert Patterson and John Noonan appeal the district court's decision affirming the bankruptcy Court's denial of secured status to their claims against the assets of Chapter 11 debtor Copper King Inn. We reverse.

STANDARD OF REVIEW

We, like the district court, review de novo the bankruptcy court's conclusions of law. See In re Rubin, 875 F.2d 755, 758 (9th Cir. 1989); In re Center Wholesale, Inc., 759 F.2d 1440, 1445 (9th Cir. 1985).

DISCUSSION

Appellants contend their antecedent debt constituted adequate consideration to support their security interest in the debtor's assets. We agree.

Under 11 U.S.C. § 502(b) (1), a claim is not allowable if "unenforceable against the debtor, and unenforceable against property of the debtor, under ... applicable law...." In proof of claim litigation under section 502(b) (1), state law determines claim validity. In re Johnson, 756 F.2d 738, 741 (9th Cir.), cert. denied, 474 U.S. 828 (1985). Because the transaction at issue occurred in Montana, that state's law governs validity of the security agreement at bar.

Under the Uniform Commercial Code as adopted in Montana, "a security interest is not enforceable against the debtor ... unless ... value has been given." Mont. Code Ann. ("MCA") Sec. 30-9-203(1) (1989). " [A] person gives 'value' for rights if he acquires them ... as security for ... a pre-existing claim...." MCA Sec. 30-1-201(44) (b) (1989). Case law similarly confirms that under Montana law an antecedent debt constitutes value sufficient to support a security interest. See Wagner v. Glasgow Livestock Sales Co., 222 Mont. 385, 722 P.2d 1165, 1169 (1986). Accordingly, appellants' antecedent debt was sufficient consideration to support the security interest at issue.¹ 

Appellees' contention that appellants are precluded from raising arguments under Montana law by their failure to do so in the bankruptcy court is meritless. Because the bankruptcy court sua sponte addressed allowability of the claim under section 502(b) (1), appellants lacked notice that they should present these arguments. We may consider arguments for reversal not presented below where injustice might otherwise result. See Diamond Door Co. v. Lane-Stanton Lumber Co., 505 F.2d 1199, 1206 (9th Cir. 1974).

REVERSED and REMANDED for further proceedings consistent with this decision.