In re Ralph Faber Trust, Bankruptcy No. 90-05173.
| Citation | 113 BR 599 |
| Decision Date | 23 April 1990 |
| Docket Number | Bankruptcy No. 90-05173. |
| Parties | In re RALPH FABER TRUST, Don B. Eppler, Trustee, Debtor. |
| Court | United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of North Dakota |
Joseph A. Vogel, Mandan, N.D., for debtor.
Brad Sinclair, Fargo, N.D., for FCB of St. Paul.
Wayne Drewes, Fargo, N.D., Trustee.
Before the court is a Motion by Farm Credit Bank of St. Paul (FCB) for dismissal or relief from stay. Both remedies are premised upon the argument that the Debtor, Ralph Faber Trust, is a land trust and as a consequence does not qualify for relief under Chapter 12 of the Bankruptcy Code.
Relief under Chapter 12 is available only to a family farmer with regular annual income. 11 U.S.C. § 109(f). The definition of "family farmer" set forth in section 101(17) includes:
(B) Corporation or partnership in which more than fifty percent of the outstanding stock or equity is held by one family, or by one family and the relatives of the members of such family, and such family or such relatives conduct the farming operation, and . . .
It is the Debtor's position that it qualifies as a corporation since that term as defined by section 101(8)(A)(v) includes business trusts. It believes that not only does it qualify as a business trust but that in such capacity it "conducted" a "farming operation" as that term is defined in section 101(20) of the Code. FCB while acknowledging that a business trust, because it is included in the Code definition of corporation, may avail itself of relief under the Code, argues that the Debtor is nothing more than a land trust which have been historically denied bankruptcy relief. A hearing was held before the undersigned on April 19, 1990.
Ralph Faber prior to his death in 1988 was a farmer in Ransom County, North Dakota. In order to ensure the longevity of the farming operation in 1983 he created an irrevocable trust called the "Ralph Faber Trust" for the express purpose of holding, managing, investing and re-investing the trust property until the death of his last surviving child. The trust's corpus consists of twelve quarters of farmland of which 1,700 acres are tillable, a pivot irrigation system and a small bank account. Beneficiaries of the trust are Ralph's son, Robert Faber, and Robert's four children who are the grandchildren of Ralph Faber. Upon expiration of the trust term (death of Robert Faber) all property and income is to be distributed to the grandchildren. Article III of the Agreement provides that any person, with consent of the trustee, may add property to the estate. Article IV accords to the trustee the power to acquire, invest, and sell trust property, borrow money, extend mortgages, improve the property and lease the property.
The trust agreement bears no reference to the ability or authority to farm the land and indeed the trust owns no farm equipment and has never actively farmed the property itself but has, throughout the course of its existence, rented the land to trust beneficiaries and others.
In 1987, 1988 and 1989, the year immediately preceding the Chapter 12 filing, all the farmland was cash rented to Robert Faber and his son, Charles Faber. In 1985 the Fabers rented all but 737 acres which were leased on a crop share basis to a third party. In 1986 seventy-five percent of the land was cash rented to a third party and the balance rented to Robert. For the current 1990 farm year Robert and Charles are cash renting 168 acres and leasing another 292 on crop share. Four hundred eighty acres are cash rented to a third party and 701 acres are enrolled in CRP. Historically the trust has made no decisions regarding cultivation, seeding, planting or harvesting. All farming decisions as well as the actual farming itself has been left to Robert and Charles or third parties. The Fabers contract directly for all costs of production including feed, seed, and fuel except that in 1989 upon advice of the trust's attorney and in contemplation of Chapter 12, a seed bill invoiced to the Fabers was paid by the trust using money given it by the Fabers for that purpose. The CRP acres will be managed by Robert and Charles and they, rather than the trust, will bear all associated costs. The trust filed fiduciary income tax returns and for 1989 shows farm rents as the only source of income except for the seed bill it paid at the behest of its attorney. Likewise, the only source of income for 1988 and 1987 was farm rents. The trustee conceded that the trust has never itself actively farmed the land and has incurred no risk save for the possibility of not receiving rents.
The trust borrowed $500,000.00 from FCB in 1984 using the proceeds to pay off an existing mortgage at a local bank, to purchase an additional quarter of land Ralph Faber had contracted for, and to purchase an irrigation system. This indebtedness, which now totals $716,260.00, is secured by a mortgage on all twelve quarters which the trust in its Chapter 12 petition filed on March 2, 1990, has valued at $384,000.00.
The inclusion of a business trust in the definition of a "corporation" and the distinction between business trusts and non-business trusts is not new. Section 1(8) of the former Bankruptcy Act provided that the term "corporation" include any business conducted by trustees providing the beneficial or ownership interest is evidenced by a certificate or other written instrument. 11 U.S.C. § 1(8). In Associated Cemetery Management, Inc. v. Barnes, 268 F.2d 97, 103 (8th Cir.1959), the circuit believed that the only trusts included by section 1(8) in the definition of "corporation" were those which were associations of beneficiaries formed for the purpose of conducting business. The sense was that organizations, whether incorporated or not, are regarded as within the scope of a corporation for bankruptcy purposes if they are associations of persons joined together for a common business or commercial purpose and which have conducted their affairs in a fashion reminiscent of a corporation. Pope & Cottle...
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