In re Robert Bogetti & Sons
| Decision Date | 08 October 1993 |
| Docket Number | Bankruptcy No. 92-95198-11. Adv. No. 93-9044. |
| Citation | 162 BR 289 |
| Court | U.S. Bankruptcy Court — Eastern District of California |
| Parties | In re ROBERT BOGETTI & SONS, Debtor. ROBERT BOGETTI & SONS, Plaintiff, v. BANK OF AMERICA NT & SA, Successor in Interest to Security Pacific National Bank, Defendant. |
COPYRIGHT MATERIAL OMITTED
John D. Bessey, Sacramento, CA, for debtor.
William H. Parrish, Stockton, CA, for defendant.
(Amended)
This matter comes before the court on complaint of debtor Robert Bogetti & Sons (the "Partnership") against Bank of America ("Bank") to determine the extent, validity, and priority of lien claimed by Bank. Evidence and arguments were presented at trial on September 24, 1993, after which the matter was taken under submission.
For several years prior to filing Chapter 11 bankruptcy in December 1992 and during the pendency of this case, the Partnership has engaged in farming operations. The Partnership's primary operations are growing beans on thirteen parcels of land located in San Joaquin and Stanislaus Counties. Bank asserts to have a $2.0 million perfected security interest in beans and proceeds of beans grown by the Partnership for the 1989 through 1992 crop years presently stored or on account with independent third-party agricultural cooperatives.
In June 1990, Bank agreed to loan up to $1.7 million to the Partnership on a revolving note to fund farming operations. In August 1991, the debt was renewed and restructured, and a new revolving note with a maximum loan amount of $2.0 million was executed by the parties.
Both notes were secured by identical form security agreements provided by Bank and signed by general partners of the Partnership. These security agreements were signed on the same date as the revolving notes and secured payment of debts incurred under the revolving notes and all other preexisting or future debt incurred by the Partnership. The description of the collateral after the granting language was in printed form and provided in relevant part as follows:
The security agreements referenced five parcels of land with legal descriptions attached as exhibits A through E.
Concurrent with execution of the June 1990 revolving note and security agreement, the parties executed financing statements which Bank filed with the Secretary of State and with the recorder's offices in San Joaquin and Stanislaus Counties. The financing statements were printed forms approved by the Secretary of State. Item 6 provided in printed form as follows:
This FINANCING STATEMENT covers the following types of items of property in which Debtor grants to Secured Party a security interest. . . .
Under item 6, Bank typed in a description of collateral which for the most part restated the collateral granted in the security agreement except for including a reference to after-acquired farm products which did not appear in the security agreements.
All crops now being grown or hereafter grown on real property described as follows: See Exhibits A, B, C, D, and E attached hereto and made a part hereof, all farm products of whatsoever kind and nature now owned or hereafter acquired by debtor. All present and future accounts, chattel paper, documents, notes, intangibles and returned goods. All proceeds and products of the foregoing.
Descriptions of the five parcels reference in the security agreement were attached as Exhibits A through E.1
By December 16, 1992, when the Partnership filed Chapter 11, it owed $1,989,622.67 in principal and $164,889.32 in interest for a total debt under the secured revolving notes of $2,154,511.99.
Assets on the date of filing listed in the Partnership schedules included beans and proceeds from the sale of beans harvested in 1989, 1991, and 1992 from all thirteen parcels farmed by the Partnership. The 1989 and 1991 crop was stored with Rhodes Bean and Supply Company. ("Rhodes"). Under the Partnership's agreement with Rhodes, upon harvest the beans were trucked to Rhodes processing facilities where the beans were clean, bagged, and made ready for sale. Under normal procedures, Rhodes would sell the beans and account to the Partnership for the proceeds after deducting costs, fees, and/or commissions. The 1992 crop was stored at a Vernalis, California, warehouse ("Vernalis Warehouse") owned by independent third parties which apparently operated under a cooperative agreement similar to the Partnership's agreement with Rhodes.2 In addition to the stored crop, Vernalis Warehouse owed the Partnership $69,000 on account from bean sales.
The Partnership presented testimony of general partner Robert Bogetti that the 1992 crop and proceeds were not property of the Partnership, but rather individual property of Robert Bogetti. Mr. Bogetti testified that he had hired the Partnership for the 1992 crop year to work as a "contract farmer" only, and the Partnership had no interest in the crops. Bank offered evidence rebutting Mr. Bogetti's testimony including that the Partnership had made draws for 1992 crop production cost in February 1992 and that the Partnership had consistently been treated as sole owner of the crop in 1989, 1990, and 1991, and as debtor-in-possession in 1993. The court takes judicial notice of the schedules filed by the Partnership (submitted under penalty of perjury) that the Partnership owned the 1992 crop and crop proceeds. Although the schedules have not been formally amended consistent with Mr. Bogetti's testimony, the Partnership filed a declaration by Mr. Bogetti in connection with a cash collateral motion in February 1993 that the crop and crop proceeds were individual rather than Partnership property.
Bank relies on its security documents and evidence of Partnership ownership in the 1992 crop to assert a perfected security interest in all the Partnership's 1989, 1991, and 1992 bean crop and crop proceeds. The Partnership contests the Bank's assertions and argues that since the bean crop is now held as "inventory" rather than "crops" or "farm products," Bank's security agreement does not extend a security interest in any of the beans stored and held for sale with third parties. Alternatively, the Partnership contends that if Bank's security documents are sufficient to sustain a security interest in the stored beans, such security interest is limited to the crops harvested from the five parcels described in the security agreements. The Partnership additionally argues that none of the 1992 crop is subject to any security interest because it is individual property of Robert Bogetti.
The nature, extent, and validity of Bank's security interest in Partnership property is governed by state law. Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). Resolving the dispute at hand requires the court to look to California law on contracts and the Uniform Commercial Code as adopted by the California Legislature. The ultimate questions are whether Bank has a security interest on the Partnership's beans and proceeds and whether such interest is perfected sufficient to defeat the section 544 "strong arm" powers of the debtor-in-possession to avoid unperfected interests. To resolve these questions requires the court to determine (1) what property Bank's security interest attached to, (2) whether Bank's security interest was properly perfected, and (3) if Bank had a perfected security interest, whether such interest continued to the date the Partnership filed bankruptcy.
Section 9203 of the California Commercial Code sets forth the basic requirements for attachment and enforceability of security interests.
Cal.Com. Code § 9203(1) (West 1990). Section 9203(2) continues to specify that absent contrary agreement "attachment occurs as soon as all of the events specified in subdivision (1) have taken place. . . ." Cal.Com. Code § 9203(2) (West 1990).
The parties do not dispute whether value has been given, but do dispute the adequacy or interpretation of the collateral descriptions and whether the Partnership had rights in certain of the claimed collateral. To determine what property is subject to Bank's security interest, the court will specifically address the issues raised concerning the language of the security agreements with reference to property of the Partnership estate existing at the time of execution of the security agreements.
The security agreements provided a grant of security interest in "crops growing or to be grown." Consistent with the requirements of section 9203(1) that a security interest in crops growing or to be grown include a description of the land, descriptions of five Partnership farming parcels were referenced and attached to the security agreements.
Based on the clear language of the security agreements, Bank obtained an enforceable security...
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