In re Carpenter, Bankruptcy No. 2-87-02013.

• Decision Date: 01 October 1987
• Docket Number: Bankruptcy No. 2-87-02013.
• Citation: 79 BR 316
• Parties: In re R. Scott CARPENTER, Carolyn J. Carpenter, Debtors.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

79 B.R. 316 (1987)

In re R. Scott CARPENTER, Carolyn J. Carpenter, Debtors.

Bankruptcy No. 2-87-02013.

United States Bankruptcy Court, S.D. Ohio, E.D.

October 1, 1987.

Grady L. Pettigrew, Jr., Arter & Hadden, Columbus, Ohio, for debtors.

William B. Logan, Jr., Luper Wolinetz Sheriff & Neidenthal, Columbus, Ohio, for The Federal Land Bank.

Frank M. Pees, Worthington, Ohio, Trustee.

FINDINGS, CONCLUSIONS AND ORDER ON MOTION TO DISMISS CHAPTER 12 CASE

BARBARA J. SELLERS, Bankruptcy Judge.

This matter is before the Court upon a motion filed on behalf of The Federal Land Bank ("FLB"), seeking dismissal of the Chapter 12 case of debtors R. Scott and Carolyn J. Carpenter. The motion was opposed by the debtors and was heard by the Court.

FLB contends that the debtors are ineligible for relief under Chapter 12 of the Bankruptcy Code because they are not "family farmers" as required by 11 U.S.C. § 109(f). That assertion arises from FLB's contention that the aggregate debts of the debtors exceed the $1,500,000 limitation imposed upon their right to relief under Chapter 12 by 11 U.S.C. § 101(17). Central to that determination is the characterization of the debtors' relationship with Commodity Credit Corporation ("CCC"). Exclusive of any obligations to CCC, the schedules filed by the debtors indicate debts of approximately $1,480,783, and the debtors concede that if their relationship with CCC is that of debtor and creditor, their aggregate debts exceed the statutory limit.

The issue with regard to the relationship created by the existing agreements between the debtors and CCC is whether such arrangements created loans for which CCC took security interests in certain of the debtors' crops or whether the debtors sold their crops to CCC, received proceeds for such sales, and retained an option exercisable on a "maturity date" to repurchase the crops and benefit from any increase in the market prices of the commodities. The debtors alternatively assert that the characterization of these agreements as executory contracts and the contingent and unliquidated nature of the obligations arising therefrom impact upon the inclusion of the obligations in the statutory debt limitation.

FINDINGS OF FACT

The facts in this matter are basically undisputed and are found by the Court as follows.

The debtors and CCC are parties to a number of agreements which were not listed as debts in the debtors' bankruptcy schedules.

Those agreements include:

1. Two (2) Farm Storage Notes and Security Agreements ("Farm Storage Notes").

Loan #252 is documented by a note and a security agreement in favor of CCC against 13,590 bushels of the debtors\' 1986 soy bean crop, granted to secure repayment on the note\'s maturity date of the principal amount of $62,557.09.

Loan #251 grants to CCC a security interest in 57,063 bushels of the debtors\' 1986 corn crop to secure repayment on the note\'s maturity date of loan proceeds in the principal amount of $105,942.02. Both crops are stored on the debtors\' or nearby farms.

2. Two (2) Warehouse Storage Notes and Security Agreements ("Warehouse Storage Notes").

Loan # 87 represents the transfer from farm storage to warehouse storage of 3,916 bushels of corn formerly included in Loan # 251. The other such agreement, Loan # 72, involves the warehouse storage of $2,981.51 bushels of 1986 corn in the principal amount of $5,520.20. It is not known if Loan # 72 also represents a transfer of corn previously included in Loan # 251.

3. Three (3) Farm Storage Grain Reserve Agreements. ("Reserve Agreements").

These agreements relate to commodities harvested prior to 1986 which were the subject of previous loans. Pursuant to the agreements, the debtors, as producers, agreed to store and hold certain commodities off the market for an extended period in exchange for an extension by CCC of the maturity dates of the related loans. The debtors also receive small compensation for their continued storage of these commodities. The three agreements at issue, Loans # 193, # 73A, and # 42, are for 80,479 bushels of 1984 and 1985 corn for which loan proceeds were disbursed in the approximate amount of $207,636.

Although some portion of the 1986 corn commodity has been transferred from farm storage to warehouse storage, none of the loan proceeds have been repaid, by cash or tender of negotiable certificates, and none of the commodities have been surrendered to CCC in satisfaction of the loan proceeds. UCC-1 financing statements were filed with the appropriate County Recorder's office for the commodities stored on the debtors' or nearby farms. The negotiable warehouse receipts are pledged to secure repayment of the loan amounts represented by the corn stored in warehouses.

ISSUES OF LAW

The legal issues to be determined are as follows:

1. Do the agreements between the debtors and CCC create "debts"?

2. If such agreements create a debtor-creditor relationship, are the resulting debts contingent or unliquidated?

3. If the resulting debts are contingent and/or unliquidated, does that characterization remove those obligations from the threshhold eligibility requirement for Chapter 12?

4. If the obligations are executory contracts, does that characterization impact upon their inclusion in the debt limitation for Chapter 12 eligibility?

CONCLUSIONS OF LAW

The Court finds that the agreements between the debtors and CCC create debtor-creditor relationships, the amounts of which must be counted in the debtors' eligibility for Chapter 12. In re Stedman, 72 B.R. 49 (Bankr.D.N.D.1987.)

The documents introduced into evidence at trial and the testimony of all witnesses except Mr. Carpenter clearly show that the debtors continue to own the farm commodities they produced in which CCC has taken a security interest to secure the repayment of funds advanced as loans. Although such finding is a closer call for the commodities involved in the Reserve Agreements because of the significant penalties for pre-payment or release of those commodities when the market price is below the designated release level, it is clear that only the debtor/producers can determine when and how such commodities are sold or forfeited to CCC. In this Court's opinion, that right may be determinative of ownership unless economic reality leaves no real choice. Without deciding the economic reality issue, however, and even without including the obligations for the Reserve Agreements, the outstanding obligations for the 1986 Farm Storage Notes and the Warehouse Storage Notes are sufficient to cause these debtors' debts to exceed $1,500,000.

The Court also finds that the debts created by these agreements are not contingent. Contingent debts have been said to be "claims which depend either as to their existence or their amount on some future event which may not occur at all or may not occur until some uncertain time." In re Blehm, 33 B.R. 678 at 679 (Bankr.D. Colo.1983.) There is no question that the loan proceeds received from CCC...