In re Thayer
| Decision Date | 06 March 1984 |
| Docket Number | Bankruptcy No. 83-138. |
| Court | U.S. Bankruptcy Court — District of Vermont |
| Parties | In re Merton N. THAYER and Verna S. Thayer, Debtors. |
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Paul B. Wolfe, Newport, Vt., for W.S. Mitchell, Inc.
Richard A. Brownell, Winooski, Vt., for Chittenden Trust Co.
James S. Brock, Montpelier, Vt., for Community Nat. Bank.
Austin B. Noble, and Philip K. Dodd, Montpelier, Vt., for Sperry New Holland Div. of Sperry Rand Corp.
David A. Otterman, Bradford, Vt., for Caledonia Nat. Bank.
Gregory P. Howe, Newport, Vt., for Tessitura N.V. and Elara N.V.
Joseph C. Palmisano, Barre, Vt., Trustee, pro se.
Edwards C. O'Boyle, Jr., St. Johnsbury, Vt., for debtors.
Prior to filing for relief under chapter 7 of the Bankruptcy Code (Code) on July 6, 1983, Mr. and Mrs. Thayer (Thayers) operated three dairy farms in northeastern Vermont. During the period of operation of the farms, the Thayers purchased most of their farm machinery from W.S. Mitchell, Inc. (Mitchell), a local equipment dealer, on credit advanced by Community National Bank (Community), Chittenden Trust Company (Chittenden), and Sperry New Holland Division of Sperry Rand Corporation (Sperry). This matter comes before the court on the motions of Mitchell, Community, Chittenden, and Sperry—all secured creditors listed on the chapter 7 petition—for relief, under Code section 362(d), from the automatic stay of Code section 362(a).
(Tessitura N.V., Elara N.V., and Caledonia National Bank, although strangers to the matters at issue in the instant motions, were permitted to intervene as they are parties in interest in other contested-matter proceedings in this bankruptcy.)
Subsequent to the filing of the motions, Chittenden filed a motion to amend and an amended motion, and the trustee moved to dismiss both. The trustee has also filed motions to dismiss Mitchell and Chittenden, and has objected to the standing of Community and Sperry, on the ground that no movant is a secured party.
Consolidated hearings on the lift-stay motions and the motions to dismiss were held, after notice, from time to time. From the records in the case and the testimony adduced at the hearings, facts as follow were established.
AS TO COMMUNITY: On November 22, 1978, the Thayers as buyers entered into a secured retail installment contract with Mitchell as seller for the purchase of 13 pieces of farm equipment. The installment contract incorporated a promissory note in favor of Community for the $70,000.00 cash price of the equipment. The contract contained the following clause: Mitchell co-signed the note, as assignor to Community as assignee of the retail installment contract, and within three days filed a financing statement, signed by the Thayers, reflecting the assignment, with the Town Clerk of Newport, Vermont, being the town of the Thayers' residence.
On October 9, 1980, Mr. Thayer executed and Mitchell co-signed a separate, unrelated note in favor of Community, in the amount of $15,000, for the consideration of an unsecured loan.
On October 13, 1982, Community refinanced the 1978 and 1980 notes, paying by renewal the outstanding balance of $18,673 on the 1978 note and $5,726 on the 1980 note. Additionally, Community lent $15,601 of fresh money under the renewal note, yielding an amount financed of $40,000, on a yearly rate of 14.50%. Community stamped the 1978 and 1980 notes "Renewed Oct. 12, 1982" and retained possession of the instruments.
The renewal note was incorporated in a retail installment contract executed by the Thayers, which document contained—as to security for the note incorporated therein— pertinent language as follows:
----------------------------------------------------------------------------------- "TYPE OF LOAN x Secured x Retail Installment Unsecured Promissory Note" ----------------------------------------------------------------------------------- "Rewrite of Note #1978-#1980-plus $15,601." ----------------------------------------------------------------------------------- "Security: You are giving a security interest in x The goods or property being purchased Other Unsecured." ----------------------------------------------------------------------------------- "RETAIL: This loan is secured by Motor Vehicle Mobile Home Camper EXTRA EQUIPMENT: Radio Air Cond. Auto Trans x Other x Other (describe here in detail): itemization of 9 of the pieces of equipment purchased in 1978 hereinafter referred to as "Lot # 1". -----------------------------------------------------------------------------------
In connection with the execution of this 1982 document, no goods or property changed hands in fact; the Thayers executed the document with the subjective intent of granting a security interest, although the following provision of the contract was left blank:
----------------------------------------------------------------------------------- "This loan is secured by Security Agreement - If checked, I give you a security interest in the property described below. ................................................................................... ................................................................................... Mortgage". -----------------------------------------------------------------------------------
Mitchell as seller under the retail installment agreement executed a full recourse assignment of the contract to Community and within three days filed financing statements, signed by the Thayers, and indicating the assignment, with the Newport Town Clerk and the Vermont Secretary of State. On the date the chapter 7 petition was filed, the outstanding balance on the renewal note was $33,892, which sum Mitchell, as full recourse assignor, paid Community when Community called in the note after the Thayers, as chapter 7 debtors, suspended performance on the contract. When the chapter 7 petition was filed, the fair market value of Lot # 1 was $26,050.
On September 20, 1983, Community and Mitchell posted a surety bond with the court for $70,000 and Mitchell, acting for Community, took possession of Lot # 1. The amount of the bond was reduced to $34,243 on November 15, 1983.
AS TO CHITTENDEN: On December 30, 1981, Mr. Thayer executed an installment note for $32,274 in favor of Chittenden for the consideration of a secured loan of $24,063. As security, Mr. Thayer pledged 15 pieces of farm equipment (hereinafter, Lot # 2) purchased from Mitchell in connection with the loan. Mitchell signed the note as endorser and surety, and within three days filed a financing statement, signed by Mr. Thayer, with the Newport Town Clerk. The filed financing statement indicated on its face that it had been assigned by Mitchell as the original secured party to Chittenden as assignee.
On August 2, 1982, the Thayers executed an installment note for $18,924 in favor of Chittenden for the consideration of a secured loan of $13,678. As security, the Thayers pledged a SAME 70 tractor as described in a security agreement of even date signed by the Thayers. Mitchell signed the note as endorser and surety, and eleven days later filed a financing statement, signed by the Thayers, with the Newport Town Clerk. The filed financing statement indicated that it had been assigned by Mitchell to Chittenden.
On June 15, 1983, Chittenden refinanced the 1981 and 1982 notes, marking both notes "Paid by renewal" and incorporating the outstanding balances, in the amounts of $16,858 on the 1981 note and $11,863 on the 1982 note, into the principal balance of the renewal note. Under the renewal note, executed by the Thayers, Chittenden added $13,667 of fresh money to the pot, yielding an amount financed of $42,388, on a yearly rate of 13.75%. Mitchell signed the 1983 renewal note as endorser and surety. Chittenden retained possession of the renewed 1981 and 1982 documents.
In connection with the renewal note, the Thayers granted Chittenden a security interest in Lot # 2 and in a Nasseth manure pump purchased in connection with the renewal loan. Within four days Mitchell filed a financing statement, signed by the Thayers, with the Newport Town Clerk. The filed financing statement indicated on its face that it had been assigned by Mitchell to Chittenden.
Also in connection with the renewal loan, Chittenden signed and delivered to Mitchell a Statement of Termination of Financing with respect to the SAME 70 tractor. It was the subjective intent of the bank officer who signed this statement to release Chittenden's security interest under the financing statement filed in 1982.
The Thayers filed for relief the day before the first payment was due under the renewal note. Since the date of filing, Mitchell has made payments totalling $7,876 to keep the note current. On the date the chapter 7 petition was filed, the outstanding balance on the note was roughly $42,800; the total fair market value of Lot # 2 was $19,850. Additionally, the value of the Nasseth pump was $6,750; and the value of the SAME 70 tractor was $10,000.
Chittenden filed a proof of claim on August 25, 1983.
On September 19, 1983, Chittenden posted a surety bond with the court for $22,500 and Mitchell, acting for Chittenden, took possession of Lot # 2, the Nasseth pump, and the SAME 70 tractor.
AS TO SPERRY: On July 4, 1980, Mr. Thayer as buyer entered into a retail installment contract with Mitchell as...
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