In re Oak Glen R-Vee

• Decision Date: 19 January 1981
• Docket Number: Bankruptcy No. 80-01779-JD,Adv. No. 80-1265.
• Court: U.S. Bankruptcy Court — Central District of California
• Parties: In re OAK GLEN R-VEE, a Limited Partnership, Debtor. SANTA FE FEDERAL SAVINGS & LOAN ASSOCIATION, a corporation, and Hemet Federal Savings & Loan Association, a corporation, Plaintiffs, v. OAK GLEN R-VEE, a Limited Partnership, Defendant.

8 B.R. 213 (1981)

In re OAK GLEN R-VEE, a Limited Partnership, Debtor.

SANTA FE FEDERAL SAVINGS & LOAN ASSOCIATION, a corporation, and Hemet Federal Savings & Loan Association, a corporation, Plaintiffs, v. OAK GLEN R-VEE, a Limited Partnership, Defendant.

Bankruptcy No. 80-01779-JD, Adv. No. 80-1265.

United States Bankruptcy Court, C.D. California.

January 19, 1981.

Surr & Hellyer, San Bernardino, Cal., for plaintiffs.

Lawrence A. Diamant, Robinson, Wolas & Diamant, Los Angeles, Cal., for defendant.

MEMORANDUM OF DECISION

JAMES R. DOOLEY, Bankruptcy Judge.

On March 5, 1980 the defendant debtor filed a petition under Chapter 11 of the Bankruptcy Code. Prior to and during the Chapter 11 proceedings the debtor has operated a recreational vehicle park in this district. Plaintiffs are the holders of a note and a first deed of trust encumbering the real property and improvements on which the recreational vehicle park is operated. The note has been in default since July 1, 1979; and on June 11, 1980 plaintiffs filed this action to require the debtor to cease spending, to segregate, and to account for all rents, income, issues, and profits derived from their security from and after August 1, 1979. The contentions of the parties have raised the following controlling issues:

1. Did plaintiffs' deed of trust make an absolute assignment of the rents, income, issues, and profits, or were the rents, income, issues, and profits merely given as additional security?

2. May this court require the debtor to sequester and account for the rents, income, issues, and profits from and after August 1, 1979?

3. Should this court authorize the debtor to use the rents, income, issues, and profits from its operations pursuant to 11 U.S.C. § 363(c)(2)?

4. Are plaintiffs entitled to attorney's fees for this proceeding?

RENTS ETC. GIVEN AS ADDITIONAL SECURITY

While the question is not free from doubt, this court is of the view that the deed of trust involved in this case did not make an absolute assignment of the rents, income, issues, and profits, as was the case in In re Ventura-Louise Properties, 490 F.2d 1141 (9th Cir. 1974) and Kinnison v. Guaranty Liquidating Corp., 18 Cal.2d 256, 115 P.2d 450 (1941). Rather, this court concludes for the reasons set forth below that the rents, income, issues, and profits were given as additional security as was the case in Malsman v. Brandler, 230 Cal.App.2d 922, 41 Cal.Rptr. 438 (1964).

After the grant on pages 1 and 2 of the deed of trust¹, the phrase "For the Purpose of Securing:" appears on page 2. Thereafter on page 2 are listed the payments or other performances which the deed of trust was given for the purpose of securing. Also, at the top of page 3 of the Deed of Trust appears the following clause: "To Protect the Security of this Deed of Trust, Trustor Agrees:". Thereafter appear twenty-eight numbered paragraphs; and paragraph (20) on page 6 is entitled "Right to Collect and Receive Rents and Profits"². While paragraph (20), if considered alone, might be construed as an absolute assignment of the rents, income, issues, and profits upon default; this paragraph should be construed in conjunction with the language at the top of page 3, which indicates that the agreement was made to protect the security, and the language on page 2, which indicates that the grant was given for the purpose of securing performance.

Under California law³, where a beneficiary of a deed of trust only acquires a security interest in the rents, income, issues, and profits, he must, in order to obtain the rents, income, issues, and profits, actually acquire possession of the property by consent or lawful procedure or secure the appointment of a receiver, or take such other action as is deemed a substitute for possession. In re Hotel St. James Company, 65 F.2d 82, 84 (9th Cir. 1933). Malsman v. Brandler, supra, 230 Cal.App., at pages 923-924, 41 Cal.Rptr. 438; see also, In re Ventura-Louise Properties, supra, at page 1143; Kinnison v. Guaranty Liquidating Corp., supra, 18 Cal.2d at page 261, 115 P.2d at 450.

POWER OF COURT TO ORDER SEQUESTRATION

Where bankruptcy proceedings are pending, efforts in the bankruptcy court by the holder of the trust deed or mortgage to have the rents sequestered have been held sufficient to enable the court to thereafter award the rents to the holder of the trust deed or mortgage. Groves v. Fresno Guarantee Savings and Loan Assn., 373 F.2d 440, 442-443 (9th Cir. 1967); Pollack v. Sampsell, 174 F.2d 415, 418-419 (9th Cir. 1949); American Trust Co. v. England, 84 F.2d 352, 356 (9th Cir. 1936); 4A Collier on Bankruptcy, 14th Ed., ¶ 70.16, pages 161-162.1. As the court in Pollack v. Sampsell, supra, declared (page 418):

"These courts are agreed, however, that where the holder of the trust deed or mortgage has either by appropriate steps taken prior to the bankruptcy, or by timely application to the bankruptcy court, actively undertaken to obtain the rents or profits of the real property for application upon the mortgage indebtedness, it is then the duty of the bankruptcy court to preserve the rents and profits for the holder of the trust deed or mortgage. These decisions may be justified upon the ground that in such cases the diligence of the mortgagee has demonstrated that he would probably have realized upon the rents or profits had bankruptcy not intervened."

Thus the filing of plaintiffs' complaint in this action on June 11, 1980 is sufficient to enable this court to order that the rents, income, issues, and profits of the debtor's operations from and after June 11, 1980 be turned over to or sequestered for the benefit of plaintiffs. However, rents, income, issues and profits prior to June 11, 1980 may not be turned over to or sequestered for plaintiffs.

USE OF RENTS ETC. AUTHORIZED UNDER 11 U.S.C. § 363(c)(2)

Under 11 U.S.C. § 363(c)(2) the court, after notice and a hearing, may authorize the use of cash collateral. This court is of the view that rather than ordering the rents etc. sequestered for plaintiffs, the debtor should be authorized, nunc pro tunc as of June 11, 1980, to use the rents, income, issues, and profits from its operations for a reasonable period of time pursuant to 11 U.S.C. § 363(c)(2).⁴ At trial the debt owed to plaintiffs, including attorneys fees, totaled approximately $525,000.00; while there was testimony at trial that the property given to secure the debt had a value of $1,700,000.00 while being operated, and a value of $1,300,000.00 without being operated. From the evidence adduced at trial the court finds and concludes that the property given to secure plaintiffs' debt has a reasonable market value of at least $1,000,000.00 and that there is a sufficient equity "cushion" in the property at this time to afford plaintiffs adequate protection. In re Rogers Development Corp., 2 B.R. 679, 5 B.C.D. 1392 (Bkrtcy. E.D.Va. 1980, Blackwell N. Shelley, Bankruptcy Judge); 2 Collier on Bankruptcy, 15th Ed., ¶ 361.01, pages 361-9.

ATTORNEYS' FEES

A secured creditor is entitled to reasonable attorney's fees if provided for in the security agreement, and the security is sufficient to pay for them. In re Bain, 527 F.2d 681 (6th Cir. 1975); In re Neil Properties, Inc., 360 F.Supp. 914 (C.D.Calif.1966).

The deed of trust in this case contains several provisions which relate to the issue of attorney's fees. Page 2 of the deed of trust shows that the deed was given:

"FOR THE PURPOSE OF SECURING:

* * * * * *

(2) Payment of such additional sums with interest thereon

* * * * * *

(b) as may be paid out or advanced by Beneficiary, or may otherwise be due to Trustee or Beneficiary, under any provision of this Deed of Trust and all modifications, extensions or renewals thereof or"

At the top of page 3 of the deed of trust appears the heading "To Protect The Security of this Deed of Trust, Trustor Agrees:". Paragraph (10) under this heading on page 5 provides as follows:

"(10) Li

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