Armstrong, Matter of, 85-3186
| Decision Date | 14 May 1987 |
| Docket Number | No. 85-3186,85-3186 |
| Citation | 812 F.2d 1024 |
| Parties | , 16 Collier Bankr.Cas.2d 238, 15 Bankr.Ct.Dec. 1095, Bankr. L. Rep. P 71,685 In the Matter of Bernard ARMSTRONG, Debtor-Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Edwin E. Heubi, Peoria, Ill., for debtor-appellant.
Alan L. Sternberg, Pratt & Sternberg, Bloomington, Ill., for appellee.
Before CUDAHY and FLAUM, Circuit Judges, and CAMPBELL, Senior District Judge. *
Debtor-appellant Bernard Armstrong seeks to avoid being placed in involuntary bankruptcy pursuant to 11 U.S.C. Sec. 303, et seq. He appeals determinations by the bankruptcy court and the district court that he is not a farmer within the meaning of 11 U.S.C. Secs. 303(a) and 101(17) and (18) and that he is a debtor within the meaning of 11 U.S.C. Sec. 303(h)(1). For the reasons set forth below, we affirm the rulings of the lower tribunals.
On March 31, 1982, appellee, the Corn Belt Bank, now known as BancMidwest of McLean County, N.A., commenced this action by filing a petition seeking to place Armstrong in involuntary bankruptcy under Chapter 11. Undisputably, Armstrong's primary source of income since 1939 has been derived from farming activities. Involuntary cases such as the one at bar are not permitted against a person deemed to be a farmer pursuant to 11 U.S.C. Sec. 303(a). Section 303(a) reads:
An involuntary case may be commenced only under Chapter 7 or 11 of this title, and only against a person, except a farmer or a corporation that is not a moneyed, business, or commercial corporation, that may be a debtor under the chapter under which such case is commenced.
However, to be considered a farmer, and to be protected from involuntary Chapter 11 proceedings, one must meet the stringent criteria set forth at 11 U.S.C. Sec. 101(17) and (18). 11 U.S.C. Sec. 101(17) reads:
"farmer" means person that received more than 80 percent of such person's gross income during the taxable year of such person immediately proceeding the taxable year of such person during which the case under this title concerning such person was commenced from a farming operation owned or operated by such person.
11 U.S.C. Sec. 101(18) defines a farming operation in the following manner:
"farming operation" includes farming, tillage of the soil, dairy farming, ranching, production or raising of crops, poultry, or livestock, and production of poultry or livestock products in an unmanufactured state.
The lower tribunals ruled that less than 81% of Armstrong's taxable income for 1981, the relevant time period, was derived from farming. They also ruled Armstrong was a debtor within the meaning of 11 U.S.C. Sec. 303(h)(1), infra. These two determinations subject Armstrong to involuntary Chapter 11 proceedings. In this appeal Armstrong objects to the two determinations. We first provide some perspective behind the dispute, then address the "farmer issue" (Sec. 101(17) and (18)) and close with the "debtor issue" (Sec. 303(h)(1)).
The parties are in agreement concerning the sources of Armstrong's gross income for 1981. How that income should be classified pursuant to Sec. 101(17) and (18) is the crux of the dispute. Armstrong's gross income for 1981 is as follows:
Sale of Beans $33,175.00
Sale of Corn 4,932.00
Sale of Machinery 29,500.00
Elevator Patronage Dividend 72.00
Farming Rent 17,181.50
Gasoline Tax Credit 61.00
Gasoline Tax Refund 92.50
Interest from Farm Account 1,701.00
Wages from Armstrong Seed Co. 12,000.00
Non-farm Interest 350.00
Non-farm Interest 28.00
TOTAL GROSS $99,093.00
First, the parties agree that income Armstrong received from the sale of beans and corn should be considered as derived from a farming operation within the meaning of Sec. 101(17) and (18). Secondly, the bankruptcy court ruled no evidence was presented by appellee concerning the gasoline tax credit or refund or the elevator patronage dividend. Therefore, it ruled the bank failed to meet its burden of proof concerning these items and they would be considered as income from farming operations (see bankruptcy court decision of December 1, 1982, page 4). This result (or waiver) is not contested on appeal. The dollar amounts surrounding these items appear inconsequential. The parties further agree that the income received from wages from the Armstrong Hybrid Seed Company and the "non-farm interest" monies do not constitute income from farming operations within the meaning of Sec. 101(17) and (18). This leaves us with three final items--income Armstrong received from the sale of farm machinery, money received from acreage Armstrong rented to a third party and interest income received from a farm account of Armstrong's.
The lower tribunals ruled these three items do not constitute income received from farming operations within the meaning of Sec. 101(17) and (18). Armstrong argues on appeal that all three items should be considered as derived from his farming operation. We hold the sale of the farming equipment should have been considered as received from the farming operation, reversing the ruling of the lower tribunals on this item. However, we affirm the lower courts' ruling that the rental income and interest from the farm account was not received from the farming operation. 55 B.R. 755 (1985). Hence, after some calculating, while we differ from the lower tribunals on how the sale of the farming equipment should be treated, our affirmance on the other items means Armstrong has still failed to demonstrate that over 80% of his income was derived from farming operations. Armstrong's plight remains the same, but the means to the end is to be altered.
We agree with appellant that the lower courts' rulings on the sale of the farm machinery were simply too rigid an analysis when one takes into account the purpose and history behind the relevant statutory law and the broad interpretation to be given to the bankruptcy code in general. In the instant case Armstrong's farm machinery was inescapably interwoven with his farming operation. Importantly, it is undisputed Armstrong was never in the business of buying, selling or trading such machinery. The machinery was purchased to work the acreage that represented Armstrong's farming operation. Had the farm prospered, the machinery would have stayed in Armstrong's possession. He bought the machinery so the farm could exist and prosper. But for the machinery, there would be no farm. Section 101(18) defines "farming operation" as including, "... farming, tillage of the soil, dairy farming...." The definition does not provide a simple all-inclusive list of tasks and activities (i.e., tillage of the soil, dairy farming). Instead, the section starts out in general terms--"Farming operation includes farming, tillage of the soil, dairy farming ..." (emphasis added). Implicit in this definition is the inclusion of general activities inherent in farming and, we believe, the means (or in this case the equipment) necessary to perpetuate the farming operation the definition speaks of. When a farmer sells some of his machinery in an effort to scale down his operation (say from 200-100 acres) and save the farm, the money received is inescapably from the 50% of the farming operation dissolved.
We believe this to be a pragmatic viewpoint. A contrary result would reap illogical results which we are confident Congress had no desire to create. Farmers in financial trouble could harvest their crop on a given year, decide to scale down their operation, sell machinery and be considered non-farmers under Sec. 101(17) even though they had no significant outside employment or income. Suppose Armstrong had no income from farming rent or the seed company. After all, many legitimate farmers do not rent land or receive wages from outside companies. Given this scenario Armstrong could have made money solely from the sale of beans and corn (and inconsequential income from elsewhere) and yet still have been considered a non-farmer. This result is illogical, undesired and unnecessary. One envisions large numbers of cases where farmers, by merely pruning their operations and selling their equipment, are no longer considered farmers for purposes of the bankruptcy code. We do not believe Congress envisioned such a scenario and believe a broader interpretation is necessary.
Farmers are exempted from the commencement of involuntary cases under Title 11 See Senate Report No. 95-989, U.S.Code Cong. & Admin.News 1978, p. 5787 as found in the Historical & Revision Notes of Title 11. This rationale is steeped in the concept of risk; farmers are caught in a risk-ridden enterprise. To say that the implements which are necessary to perpetuate the enterprise are not part of the enterprise is not logical, especially when, as in the instant case, the implements are sold to keep the enterprise, in its failed form, afloat. We may have reached a different result if the record had revealed that Armstrong had a history of buying and selling equipment on an experimental basis or for investment purposes. However, the record in this case inescapably points to the fact that the sale in this case was, "... a sale of a portion of the equipment of a person in financial trouble." See Bankruptcy Court Opinion and Order of December 1, 1982, page 4. The record reveals the equipment was a necessity for the farming operation, not a detached investment distinct from the farm. Hence, we conclude it was part of...
To continue reading
Request your trial
-
First Nat'l Bank of Durango v. Woods (In re Woods)
...farmer, there would be no farm.”). The but-for test was at least in part derived from the Seventh Circuit's decision in In re Armstrong, 812 F.2d 1024 (7th Cir.1987), where the court had to decide what portion of the debtor's income was derived “from a farming operation” under an earlier ve......
-
In re Buckingham
...the special provisions contained in Chapter 12 of the Code. "This rationale is steeped in the concept of risk" (citing In re Armstrong, 812 F.2d 1024, 1027 (7th Cir.1987)). "In determining whether an activity is an farming operation we consider, therefore, whether a debtor's purported farmi......
-
In re NRS Props., LLC
...farming operations [ ] rather [than] from the income derived from a promissory note." Toward that end, MMOF cited Matter of Armstrong , 812 F.2d 1024, 1028-29 (7th Cir. 1987). Although the citation is correct, it is outdated, stale, and no longer valid. In Armstrong , the court construed th......
-
In re Sharp, BAP No. WO-06-013.
...an exclusive list of all farming activities and is not limited to the specific activities delineated in the statute. In re Armstrong, 812 F.2d 1024, 1026 (7th Cir.1987); Watford v. Fed. Land Bank of Columbia (In re Watford), 898 F.2d 1525, 1527 (11th Cir.1990). "This definition is to be con......