In Re Copper King Inn, Inc., Debtor. Trust Corporation of Montana v. Robert Patterson, John Noonan, James McDermand Donald Johnson, and Arthur West

We are asked to decide whether Trust Corporation of Montana (“Trust Corporation”) has a perfected security interest in furniture and equipment owned by Copper King Inn, Inc. (“Copper King”), a Montana corporation currently in Chapter 11 bankruptcy. We agree with the bankruptcy court that it does not.

Copper King owned and operated a hotel in Butte, Montana. In 1984 it began to have trouble paying its debts. John T. Noonan and Robert C. Patterson, who were officers, directors and shareholders of Copper King, came to the corporation’s rescue, extending loans of $62,500 each in exchange for interest bearing promissory notes. No security was given at the time. Copper King was unable to pay when the notes became due on December 31, 1984, so repayment was deferred until July 31, 1985. When the deadline arrived, Copper King was still in financial straits, and therefore repayment was postponed indefinitely.

Northwest Capital Management & Trust Company (“Northwest”) entered the picture at this point. Northwest was predecessor in interest to the Trust Corporation, appellant in this case. It also served as trustee for John T. Noonan Pension & Profit Sharing Plans. On February 1, 1986,…