In re Cupp
| Decision Date | 19 April 1984 |
| Docket Number | Related Case 83-01661.,Bankruptcy No. 83-0787 |
| Citation | 38 BR 953 |
| Parties | In re Kenneth CUPP, Debtor. WAPAKONETA PRODUCTION CREDIT, Plaintiff, v. Kenneth W. CUPP, et al., Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
Jery M. Johnson, Lima, Ohio, for plaintiff.
Michael J. Leatherman, Findlay, Ohio, for defendants.
This cause comes before this Court upon the Complaint to Enjoin the Debtors filed by the Wapakoneta Production Credit Association. It has been agreed between the parties that the merits of the Complaint address primarily issues of law, and that an adjudication of those issues may be reached based upon the submission of written arguments of counsel as well as any exhibits attached thereto. Pursuant to that agreement, the parties have filed their briefs and have had the opportunity to respond to the arguments made by opposing counsel. Having reviewed the record and the arguments set forth by counsel, the Court finds that for the following reasons the Complaint should be granted.
The facts which give rise to this Complaint do not appear to be in dispute. The Debtor-In-Possession is a farmer whose operations include the growing of certain crops. Beginning at sometime in 1978, the Debtor-In-Possession began borrowing money from the Plaintiff in order to finance the expenses of his business. In return for these loans the Debtor-In-Possession gave a security interest in property which is described, in relevant part, by the security agreement as:
On January 27, 1983, the Plaintiff filed a foreclosure action which was predicated upon the security agreement and the promissory notes executed by the Debtor-In-Possession. A judgment was entered in that case on May 23, 1983.
On March 2, 1983, prior to the date of the foreclosure judgment, the Debtor-In-Possession initiated his participation in the Payment-In-Kind Program (hereinafter referred to as PIK). The terms of this program provide that the federal government would give participating farmers a quantity of grain in return for their abstention from growing any additional crops. The allotment of grain to any participant was based upon that farmer's production average in previous years and the amount of grain that was agreed not to be produced in the present year. In the case at hand, the Debtor-In-Possession was scheduled to receive under this program 1,242 bushels of wheat and 10,404 bushels of corn.
On June 29, 1983, the Debtor-In-Possession executed an assignment of the PIK proceeds from himself to the Big Oak Farms, a partnership in which he, his wife, and his mother are partners. On September 20, 1983, the Debtor-In-Possession filed his voluntary Chapter 11 Petition with this Court. The adversary Complaint was filed by the Plaintiff on October 13, 1983, wherein the Plaintiff sought to enjoin the Debtor-In-Possession from disposing of the PIK proceeds which became available to the Debtor-In-Possession on October 15, 1983. In an Order which was approved by all of the parties, this Court enjoined the Debtor-In-Possession from effectuating his assignment of the PIK payments pending a determination on the merits of this Complaint. An exception was made so as to allow the Debtor-In-Possession to use the grain to the extent necessary to feed certain cattle. However, the Debtor-In-Possession was required to post a bond for the value of the grain taken. The issue presently before the Court is whether or not the Debtor-In-Possession's entitlements under the PIK program are collateral within the scope of the security agreement which exists between the parties.
The effect of a security agreement which includes proceeds of the collateral is addressed by 11 U.S.C. § 552(b) which reads:
". . . if the debtor and a secured party enter into a security agreement before the commencement of the case and if the security interest created by such security agreement extends to property of the debtor acquired before the commencement of the case and to proceeds, product, offspring, rents, or profits of such property, then such security interest extends to such proceeds, product, offspring, rents, or profits acquired by the estate after the commencement of the case to the extent provided by such security agreement and by applicable nonbankruptcy law . . . "
Inasmuch as this section preserves the Plaintiff's security interest in any proceeds of collateral that is exchanged subsequent to the filing of a bankruptcy petition, it must be determined whether or not the PIK payments are "proceeds" with the contemplation of the security agreement.
Ohio Revised Code § 1309.25 states in pertinent part that:
"`Proceeds\'" includes whatever is received upon the sale, exchange, collection, or other disposition of collateral or proceeds . . . "
The apparent import of this provision is to allow the term "proceeds" to encompass that which is received from the disposition of collateral, regardless as to the method of disposition or the nature of what is received. See for example, Corwin v. RCA Corp. (In re Kittyhawk Television Corp.), 383 F.Supp. 691 (S.D.Ohio 1974), aff'd, 516 F.2d 24 (6th Cir.1975). Although it cannot be directly used for construing the term "proceeds", Section 552(b) of the Bankruptcy Code elaborates on the breadth of the term's application as it may be used in state law. Therefore, in view of the policy expressed by the Ohio statute and as retained by the Bankruptcy Code, "proceeds" must be given a liberal interpretation.
In addition to the consideration which must be given to the term "proceeds" it is also important to note that a...
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