In re Britton
| Decision Date | 15 January 1988 |
| Docket Number | 87-00959-MO4,Bankruptcy No. 86-03019-MO2,87-00960-MO4 and 87-00841-MN4. |
| Citation | 83 BR 914 |
| Court | U.S. Bankruptcy Court — Eastern District of North Carolina |
| Parties | In re L.P. BRITTON, Jr., d/b/a Britton Trading Co., Britton Trading Co., Inc., St. John's Farms and Gay H. Britton, Debtors. In re Jennings Bryan TINGLE, Sr., Fannie Rowe Tingle, Debtors. In re Jennings Bryan TINGLE, Jr., Debtor. In re J.B. BERRY and Pauline M. Berry, Debtors. |
Rudolf A. Renfer, Jr., Asst. U.S. Atty., for U.S.
Kenneth H. Gillespie, New Bern, N.C., for debtors Tingle and Berry.
David L. Eades, Charlotte, N.C., for Brittons.
Richard M. Stearns, Kinston, N.C., trustee for Tingle and Berry.
Gregory B. Crampton, Raleigh, N.C., trustee for Britton.
Edward J. Harper, II, Greenville, N.C., for Federal Land Bank of Columbia (FLB).
William F. Hill, New Bern, N.C., for Wachovia Bank and Trust Co.
These matters are before the court on the motions of the United States of America to lift the automatic stay and allow set-offs. The motions are resisted by the debtors, the trustees and The Federal Land Bank of Columbia, and in the Tingle cases, by Wachovia Bank and Trust Company.
The United States of America (hereinafter "USA") is represented by Rudolf A. Renfer, Jr., Assistant United States Attorney. The debtors in the Tingle cases and the Berry case are represented by Kenneth H. Gillespie, Attorney at Law, New Bern, North Carolina. The Brittons are represented by David L. Eades, Attorney at Law, Charlotte, North Carolina. The trustee in the Tingle cases and the Berry case is Richard M. Stearns, Attorney at Law, Kinston, North Carolina. The trustee in the Britton case is Gregory B. Crampton, Attorney at Law, Raleigh, North Carolina. The Federal Land Bank of Columbia (hereinafter "FLB") is represented by Edward J. Harper, II, Attorney at Law, Greenville, North Carolina. Wachovia Bank and Trust Company is represented by William F. Hill, Attorney at Law, New Bern, North Carolina.
These cases involve similar facts and identical questions of law. As a result, the matters were consolidated for hearing.
In each of these cases, the debtors were indebted to Farmers Home Administration (hereinafter "FmHA") at the time their petitions were filed. Prior to bankruptcy, the male debtors were engaged in farming operations and each entered into contracts with the Commodity Credit Corporation (hereinafter "CCC") to participate in the 1986 or 1987 price support and production adjustment program on the farms they operated. The contracts required the debtors to protect the land designated as "acreage conservation reserve" by planting certain cover crops or following certain practices on such land and to control erosion, insects, weeds and rodents. ). Upon compliance with the contracts, the male debtors became entitled to certain payments from the CCC. The amount of the payments was unliquidated and could not be determined until after the crop season ended. As a result, the payments to the male debtors did not become due and payable until post-petition. In the initial motions, FmHA requested authority to set off the debts due the male debtors arising out of contracts executed post-petition. However, FmHA has acknowledged that these debts are post-petition, and it has withdrawn its request as to such amounts.
The parties have agreed that the court may consider appropriate federal regulations in determining the issues raised by the motions.
Berry Case: The Berry case is a Chapter 12 case. The petition was filed on March 31, 1987, under Chapter 7 and was converted to a case under Chapter 12 on August 14, 1987. The CCC is indebted to J.B. Berry in the amount of Seven Thousand Six Hundred Twenty-four and 84/100 Dollars ($7,624.84) for payment due for participation in the 1987 price support and production adjustment program. At the time the Berrys filed their joint petition, they were jointly and severally indebted to the Farmers Home Administration in the amount of Three Hundred Thousand Twenty and 69/100 Dollars ($300,020.69). The claim was secured by real property with a value of approximately Ninety-five Thousand and No/100 Dollars ($95,000). On September 10, 1987, FmHA filed a proof of claim for the amount due from debtors. The proof of claim did not assert any setoff. On September 17, 1987, FmHA filed a motion to lift the automatic stay and set off the amount owed the male debtors by CCC against the joint and several debt owed by the debtors to FmHA. An amended proof of claim was filed by FmHA on October 19, 1987, which asserted the right to set off the debt from CCC to the male debtor against the joint and several debt of debtors to FmHA.
Tingle Cases: On April 10, 1987, Jennings Bryan Tingle, Sr., and wife, Fannie Rowe Tingle, filed a joint Chapter 12 case and Jennings Bryan Tingle, Jr., filed an individual case under Chapter 12. Cheryl Potter Tingle, the wife of Jennings Bryan Tingle, Jr., is not in bankruptcy. The three (3) debtors and Cheryl Potter Tingle are jointly and severally indebted to FmHA in the amount of One Hundred Ninety-four Thousand Five Hundred Fifty-one and 17/100 Dollars ($194,551.17). The debt is secured by certain real property, but because of the claims of senior lien holders, the claim of FmHA is unsecured. The CCC is indebted to Jennings Bryan Tingle, Jr., in the amount of Sixty-four Thousand Eight Hundred Sixteen and 85/100 Dollars ($64,816.85) for payments due under the 1986 and 1987 corn and wheat price support and production adjustment program. The CCC is indebted to Jennings Bryan Tingle, Sr., in the amount of Fifty-eight Thousand Seven Hundred Fifteen and 48/100 Dollars ($58,715.48) for payments due under the 1986 and 1987 corn and wheat price support and production adjustment program. The court would have it noted that the amounts of CCC's indebtedness to the Tingles were determined by court analysis of the contracts offered as exhibits by the USA and not merely by consideration of the cover sheets attached to these contracts. On May 18, 1987, FmHA filed a proof of claim against Jennings Bryan Tingle, Jr., and against Jennings Bryan Tingle, Sr., and wife for One Hundred Ninety-four Thousand Five Hundred Fifty-one and 18/100 Dollars ($194,551.18). The proofs of claim did not assert any set-off. On September 8, 1987, FmHA filed motions to lift the automatic stay and set off the amount owed the male debtors by CCC against the joint and several debts owed by the debtors to FmHA. On October 19, 1987, FmHA filed an amended proof of claim against the debtors and asserted the right to set off the debts from CCC to the male debtors against the joint and several debts of the debtors to FmHA.
Britton Case: The Brittons filed a petition under Chapter 11 on December 31, 1986. At the time, the debtors were jointly and severally indebted to FmHA on an unsecured debt of Five Hundred Sixty Thousand Three Hundred Fifty-five and 25/100 Dollars ($560,355.25) and a secured debt in the amount of One Hundred Thirty-two Thousand Eight Hundred Forty-nine and No/100 Dollars ($132,849). On March 19, 1987, FmHA filed proofs of claim for both debts and did not assert any set-off. On October 22, 1987, FmHA filed a motion to lift the automatic stay and requested authority to exercise its right of set-off. On October 23, 1987, the FmHA filed amended proofs of claim and asserted the right to set-off all program payments due the male debtor. The CCC is indebted to the male debtor in the amount of Twenty-two Thousand Three Hundred Forty-one and 80/100 Dollars ($22,341.80) for payments due for participation in the 1987 price support and production adjustment program.
The issue is whether the USA has a right to set off the program payments due the male debtors from CCC against the debtors' joint and several obligations to FmHA and, if so, whether the automatic stay should be lifted to permit the set-off.
The USA contends that it has the right to set off under 31 U.S.C. § 3716 which authorizes the head of an agency to make an administrative "offset" under certain conditions. However, § 3716 does not apply in a bankruptcy case. 31 U.S.C. § 3716(c)(2). The Bankruptcy Code recognizes the right to offset mutual debts where such right exists at common law or by state statute. 11 U.S.C. § 553(a).
The right to set off mutual debts is a common law doctrine based on principles of equity. It was first recognized in American bankruptcy law in the Bankruptcy Act of 1800 and has continued to be recognized in bankruptcy law up to the present. 4 Collier on Bankruptcy, ¶ 553.01 (L. King 15th ed. 1987). As the bankruptcy law has developed, however, certain restrictions have been imposed on the right to set-off. The Bankruptcy Code provides that the filing of a petition operates as an automatic stay against the set-off of any debt owing to the debtor that arose prepetition against any claim against the debtor that arose prepetition. 11 U.S.C. § 362(a)(7). Also, the Bankruptcy Code now permits the trustee to recover certain prepetition setoffs which were not recoverable under the Bankruptcy Act. 11 U.S.C. § 553; 4 Collier on Bankruptcy ¶ 553.01 (L. King 15th ed. 1987).
Certain differences between the set-off provisions of the Bankruptcy Act and the Bankruptcy Code should be emphasized. Section 68a of the Bankruptcy Act provides that "In all cases of mutual debts or mutual credits between the estate of a bankrupt and a creditor, the account shall be stated and one debt shall be set off against the other, and the balance only shall be allowed or paid." The language in section 68a provides for a federal right of set-off. In contrast to section 68a, section 553 of the Bankruptcy Code simply recognizes the right of set-off where it exists in nonbankruptcy law. As a result, many of the cases deciding set-off issues under section 68a of the...
To continue reading
Request your trial