In re Matis
| Decision Date | 28 May 1987 |
| Docket Number | Bankruptcy No. 86-00478. |
| Parties | In re Paul P. MATIS, Jr., Charlotte A. Matis, Debtors. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Northern District of New York |
Herzog, Engstrom, Burke, Koplovitz, Cavalier & Lyman, P.C., Albany, N.Y., for Central National Bank, Canajoharie; Charles J. Tallent, Patrick J. MacKrell, of counsel.
Brett W. Martin, Utica, N.Y., for debtors.
MEMORANDUM-DECISION, FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER
The Central National Bank, Canajoharie ("CNB") seeks relief from the automatic stay of § 362 of the Bankruptcy Code, 11 U.S.C. §§ 101-151326 ("Code") so as to proceed against certain assets of Paul P. Matis, Jr. and Charlotte A. Matis, husband and wife, ("Debtors"). CNB is Debtors' largest creditor, holding secured and unsecured claims in a stipulated total amount of $614,198.48. The parties do not dispute that between September, 1980 and January, 1982, they entered into a series of five (5) secured transactions, and that CNB had properly perfected its interest in the stated collateral by filing financial statements (and continuation statements where appropriate) with the Clerk of Montgomery County, New York. What is disputed is whether CNB has a perfected security interest in some 95 head of registered Holstein cows and heifers, by virtue of "after-acquired property" clauses in the pertinent security agreements. Debtors contend these animals are not part of their bankruptcy estate, but rather are owned by a partnership doing business as Dutch Treat Farms. Debtors allegedly are co-owners of a one-half interest in this partnership, with the other one-half interest owned by C. Philip Armistead ("Armistead"). Concerning this discord, testimony and evidence was had as to the status of ownership, as well as to the herd's value.
The second item of contention involves the valuation of Debtors' farm machinery and equipment for purposes of determining adequate protection. Again, there is no dispute that such collateral is the subject of a CNB security interest.
Testimony and evidence was adduced over the course of two and one-half days (September 18, December 10, and December 11, 1986), with each party afforded the opportunity to cross-examine. The parties were ordered to submit memoranda no later than December 29, 1986; however, as CNB and Debtors agreed amongst themselves to extend this deadline, the Court interprets the former's actions to constitute a waiver of the provisions of Code § 362(e), and Fed.R.Bankr.P. 4001(b).
The Debtors filed their petition for relief under Chapter 11 of the Code on March 27, 1986. At the time of the filing, and at all material times prior thereto, Debtors were engaged in the dairy farming business, operating at a number of different locations in Montgomery County, New York.
Mr. Matis testified extensively concerning the alleged partnership relationship with Armistead, which began some time in December 1975. Apparently, these individuals agreed to start a business involving the acquisition, maintenance and trading of a registered herd of Holsteins. This business was to form only one part of Debtors' ongoing dairy operations. Armistead agreed to purchase 12 purebred animals, with Mr. Matis providing the daily care of the herd. Later additions were anticipated, with Armistead to supply the purchase money. Armistead stated he last purchased animals for the herd in 1981 or 1982. These later purchases totaled some $54,000.00, and the parties memorialized Debtor's resultant obligation by executing a promissory note listing a total obligation of $104,000.00. This note, executed on May 1, 1979, presumably documents the $54,000.00 in animal purchases, as well as a $50,000.00 loan from Armistead to Debtors. The note describes the collateral securing its repayment as "2d mortgage on real estate conveyed this date and cattle registered to Charles P. Armistead, Paul Matis, Jr. and Charlotte Matis." The note recites that monthly principal and interest payments are to be $800.00.
Mr. Matis and Armistead never executed a formal document detailing their business relationship. Both Armistead and Mr. Matis testified their agreement provided for Armistead's purchase of cattle, and Debtor's feeding and milking of the animals. Debtors were to retain all milk check proceeds. Armistead expected to get "interest" on the money he invested, with any sale proceeds to be split "half and half". Were the herd dispersed, Armistead was to regain his capital investment, and any remaining profit would be evenly split. (Transcript pp. 65-66, 1. 22-8). Both Armistead and Mr. Matis believe that Mrs. Matis, by virtue of marriage, has a one-half interest in her husband's interest in the business. Mrs. Matis apparently runs all milking operations for the herd.
Mrs. Matis testified that after joining the business,1 she contacted an attorney for the purpose of preparing a document detailing the ongoing business venture. She purportedly gave the attorney written information concerning the composition of the herd, as well as the parties' ownership interest in certain of the animals therein. The attorney apparently utilized this information to prepare certain documents which were forwarded to, and ignored by, Mr. Matis and Armistead. One year later, Mrs. Matis purportedly had another set of documents prepared; this time she personally delivered copies to her husband, and it is "to this day in his drawer by the bed." (Transcript, p. 201 1.6-7). Although both Debtors were subpoenaed to produce all documents concerning their business relationship with Armistead, the proposed agreement still, presumably, rests in the nightstand.
Neither Mr. Matis nor Armistead recalled Mrs. Matis' efforts concerning the written agreement. In fact, Armistead said he never spoke to Mrs. Matis regarding ownership of the cows, and Mr. Matis never mentioned the unexecuted document when questioned about the existence of partnership documents.
When Mr. Matis and Armistead first began their business relationship, they operated as the "Palatine Stock Farm". Mrs. Matis joined the operations about two or three years prior to her marriage to Mr. Matis, and she suggested the use of the name "Dutch Treat Farm" for the purpose of building name recognition for the herd. This name was registered with the Holstein-Friesian Association of America, located in Brattleboro, Vermont ("Association").
Richard E. Nelson ("Nelson"), the Association's Executive Assistant of Domestic Affairs, testified his organization maintains a registry of animals in the Dutch Treat Farm herd. The Association's records reflect that Mr. Matis and Armistead had registered animals as early as 1976 (Transcript, pp. 136-37, 1.24-7), but that in 1978, both Armistead and the Debtors began registering animals using the Dutch Treat Farm name. The Association maintains two signature cards for Dutch Treat Farms. The first card was filed with the Association on April 20, 1981 (Ex. D-11, 12/11/86); the second was filed on December 12, 1985 (Ex. D-10, 12/11/86). The Association also maintained signature cards for the Debtors alone, filed December 13, 1978 (Ex. D-11, 12/11/86), as well for Mr. Matis and Armistead together, filed December 6, 1976 (Ex. D-11, 12/11/86). Each card recites that for the Association's purposes, "those whose personal signatures appear on the cards constitute the owners of all animals recorded in the name of the partnership listed at the top of the card."
The Association is a voluntary organization, organized for the purpose of maintaining records documenting the ownership and transfer of purebred cattle. Consequently, the Association has strict rules for the documentation of the transfer of registered animals by members, with each transaction to be accompanied by a fee payable to the Association. Despite the diligent efforts of Nelson and other Association employees, it is obvious the Association's records, relying as they do on information received from members, are neither accurate nor complete. For example, Mr. Matis testified that of the Association certificates for animals currently in the Dutch Treat Farm herd, at least thirty indicated the owner to be someone other than the alleged partnership, the Debtors, or Armistead. Also, Mrs. Matis testified that certain animals currently a part of the Dutch Treat Farm herd, and registered with the Association under that name, are actually owned by her sons.
Indeed, Nelson stated the Association's certificates do not serve as a warranty that the "owner" listed thereon is correct. The Association's certificates are not certificates of title, nor do they reflect security interests in the subject animal. While the signature cards of the Association utilize terms with legal significance such as "ownership" and "partnership", the organization does not require supporting documentation of a business entity's legal identity. Nelson stated that if an application is made for partnership membership, the Association requires only the applicant's representation that articles of partnership could be provided. Applicants would not be required to submit such evidence however. If existing Association members desire to register animals utilizing a partnership name, the Association does not require any proof at all, be it formal or informal. Consequently, when Debtors and Armistead signed the signature card for Dutch Treat Farms, they did not provide the Association with proof of partnership operations.
The Debtors contend that when they sold Dutch Treat Farm animals, the proceeds were evenly divided with Armistead. Both Armistead and Mr. Matis recalled only one specific occasion when sale proceeds were divided. The sale took place in October 1980, with net sale proceeds of $3,950.00 being divided. Armistead did not recall ever receiving other sale proceeds, even though he stated that over the life of the alleged business relationship with...
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