In re Drewry
| Decision Date | 05 April 1989 |
| Docket Number | Adv. No. 86-6014.,Bankruptcy No. 85-60250 |
| Citation | 99 BR 906 |
| Parties | In re Charles Bemrose DREWRY and Julia Martha Drewry, Debtors. Charles Bemrose DREWRY and Julia Martha Drewry, Plaintiffs, v. METROPOLITAN LIFE INSURANCE, Production Credit Association of La Porte, First Bank of Whiting, Maurice and Inell Busselberg, Bank of Indiana, USAMEX, Conagra, Inc., and Grower Service, Inc., Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Indiana |
David A. Rosenthal, Lafayette, Ind., for plaintiffs.
William Elliot, La Porte, Ind., for Production Credit Ass'n.
Robert Stochel, Crown Point, Ind., for First Bank of Whiting.
Martin Kinney, Merrillville, Ind., for Maurice and Inell Busselberg.
Lambert Genetos, Merrillville, Ind., for Bank of Indiana.
George Rubin, and Elliott D. Levin, Indianapolis, Ind., for Usamex Fertilizers, Inc.
L.A. Kalina, Merrillville, Ind., for Conagra, Inc., and Grower Service Corp.
On February 19, 1986, Charles Bemrose Drewry and Julia Martha Drewry, the debtors herein, filed their Complaint against Metropolitan Life Insurance1 ("Metropolitan"), Production Credit Association of LaPorte ("Production Credit"), First Bank of Whiting ("Whiting Bank"), Maurice and Inell Busselberg2 ("Busselbergs"), Bank of Indiana3 ("Indiana Bank"), USAMEX4 ("Usamex"), Conagra, Inc. ("Conagra"), and Grower Service, Inc.5 ("Grower Service"). On March 24, 1986, Whiting Bank filed its Counter-Cross Claim against the debtors, Busselbergs and Indiana Bank. Thereafter on June 4, 1986, Busselbergs filed their Cross Claim against the debtors, Whiting Bank, Usamex, Conagra and Grower Service. In response the debtors filed their Cross Claim against Busselbergs on June 11, 1986. This court held a trial on these matters on November 23 and 24, 1987, and took the matters under advisement on November 25, 1987.
On November 6, 1969, Charles Drewry, as grantor, entered into a revocable trust agreement entitled Charles B. Drewry Trust No. 5747 ("Trust No. 5747") providing for the transfer of certain real estate owned by the Drewrys to Indiana Bank as trustee.6 Trust No. 5747 provided that during the lifetime of Charles Drewry, the trustee was to pay all of the net income of the trust estate to the grantor or as he might otherwise direct in writing. After the grantor's death the trustee was to divide the trust property into separate trusts for the benefit of his wife and after her death for the benefit of those chosen by Mrs. Drewry and the Drewrys' son. In conjunction with Trust No. 5747 the debtors executed a Deed in Trust in favor of Indiana Bank. Later, on or about January 3, 1971, Indiana Bank became a secured creditor in the real estate by virtue of a $125,000.00 mortgage on the property executed by Indiana Bank as trustee of Trust No. 5747. On January 20, 1972, Indiana Bank recorded the mortgage in the Recorder's Office of Lake County, Indiana.
On January 3, 1974, Charles Drewry and Julia Drewry purchased 966 acres of real estate located in Lake County, Indiana as tenants in common with Maurice Busselberg and Inell Busselberg. The Purchaser's Closing Statement states that the purchase price for the 966 acres was $850,000.00,7 and that the parties made a down payment of $50,000.00 on the property. As tenants in common, the Drewrys and the Busselbergs each held an undivided one-half interest in the real estate. With respect to his or her spouse, each owner held his or her interest in the real estate as a joint tenant with rights of survivorship in his or her spouse. Prior to the purchase of the property by the Drewrys and Busselbergs, the Busselbergs had rented and farmed the real estate for almost thirty years. At the time of the purchase by the parties the following improvements were located on the land: two houses, two garages, a tool shed, a barn, a cattle shed, a feed room, three steel bins, two harvester silos, and an automatic feeding system.
On the day of the purchase the Drewrys and Busselbergs each paid $100,000.00 on the real estate and together borrowed approximately $635,000.00 from the Federal Land Bank of Louisville ("Land Bank") for the remainder of the purchase price. The parties pledged the 966 acres as security for the debt to the Land Bank. This mortgage was recorded on January 3, 1974. Payments on the Land Bank mortgage were approximately $61,000.00 per year. The Busselbergs continued to farm the land under a fifty-fifty agreement with the Drewrys regarding their undivided one-half interest in the real estate. Pursuant to the agreement the Drewrys paid one-fourth of all farming expenses and received one-fourth of all profits from the farming of the real estate. At some point the parties apparently discontinued this arrangement, and Busselberg Farms, Inc., the Busselbergs' corporation, began to lease the Drewrys' undivided one-half interest in the 966 acres for $105.00 per tillable acre pursuant to the terms of a Farm Lease.
In the late 1970's the Drewrys built three bins on the farm to be used for drying and storing grain which the Drewrys paid for themselves. The parties understood that the Drewrys would use the bins to dry and store corn grown on the real estate (and possibly other grain) and that the Drewrys would keep the profits from their activities. The three bins, however, were to become part of the real estate (fixtures). On November 24, 1981, the Drewrys and Busselbergs entered into an eight-month Sales Agency Contract to sell the 966 acres for $4,347,000.00 with an option to lease the real estate. The realtor, though, did not sell the property.
On December 1, 1982, the principal balance of the Land Bank mortgage on the 966 acres of real estate was $461,035.93. On December 28, 1982, the Drewrys, Busselbergs and Indiana Bank as trustee of Trust No. 5747 executed an agreement which provided that as of January 1, 1983, the remaining balance on the Land Bank mortgage was $443,865.73. The agreement further stated that the parties executed the agreement in order to establish the parties' equity in the real estate and to permit the Busselbergs to prepay their portion of the remaining liability on the mortgage. The agreement stated as a consideration of the property remaining as security for the loan the Busselbergs would retain a security interest in the property (in addition to their ownership interest). The Busselbergs apparently failed to record this security interest. The agreement also granted the Busselbergs the right, in the event of a default by the Drewrys and following an appraisal of the property encumbered by the mortgage, to pay off that portion of the mortgage owed by the defaulting party and have its equitable interest in the property increased by an amount equal to that paid and with the defaulting party's interest to decrease by the same amount. In the event the Busselbergs assumed the Drewrys' liability under the Land Bank mortgage due to the Drewrys' default thereunder, the Drewrys would assign 100% of their beneficial interest in Trust 5747 and the power of direction thereunder to Busselbergs.8
On July 8, 1983, the Drewrys, as joint tenants with right of survivorship, executed a trust agreement entitled Trust No. 1788 transferring their beneficial interest in the 966 acres, as well as other real estate to Whiting Bank as trustee. The beneficial interest transferred included the right to deal with the title of the real estate, to manage and control the real estate, and the right to proceeds from rentals, mortgages or sales of the real estate. The agreement provided that the interest transferred was deemed to be personal property which could be assigned and transferred as such and that no beneficiary would have any right, title or interest in the real estate itself but only an interest in the earnings, avails and proceeds. The agreement stated that it should not be recorded and that while Whiting Bank would be the sole owner of record of the real estate Whiting Bank would convey title to the real estate, execute and deliver deeds for or otherwise deal with the property only when authorized to do so in writing by the Drewrys. Under the trust agreement the trustee had the duty to (1) hold the title to the trust property until directed to convey it or until divested of title; (2) follow the directives of the beneficiaries; (3) forward or give notice of all legal documentation and other information concerning or affecting the property; and (4) execute and transmit all deeds, mortgages, notes, options, easements, leases and other instruments relating to or affecting the property upon receiving the directive of the beneficiary or other authorized person.
On June 17, 1983, Charles Drewry executed a Letter of Direction to Whiting Bank authorizing and directing Whiting Bank as trustee of Trust No. 1788, to "contact the Indiana Bank for photocopies of all documents related to the land trust designated as Trust 5747" and authorizing Indiana Bank "to provide the Whiting Bank Trust Department with any and all information or photocopies requested concerning Trust 5747." Letter of Direction (June 17, 1983). The record does not evidence what information, if any, Indiana Bank held in its files and sent to Whiting Bank upon receiving the Letter of Direction.
On July 8, 1983, the Drewrys executed an Assignment of Beneficial Interst in Trust as Collateral Security assigning their entire beneficial interest in Trust No. 1788 to Whiting Bank as security for a debt of approximately $3,300,000.00. On August 17, 1983, Whiting Bank filed a UCC Financing Statement evidencing the Drewrys' assignment of 100% of their beneficial interest in Trust No. 1788 as security with the Secretary of State and on August 30, 1983, filed a similar financing statement with the Recorder of Lake County. On October 4, 1983, Indiana Bank as trustee under Trust No. 5747 executed a Trustee's Deed in favor of Whiting Bank as t...
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