In re Thomas

• Decision Date: 21 June 1995
• Docket Number: Bankruptcy No. 94-50260.
• Citation: 186 BR 470
• Parties: In re Cecil C. THOMAS and Etta Mae Thomas, Debtors.
• Court: U.S. Bankruptcy Court — Western District of Missouri

186 B.R. 470 (1995)

In re Cecil C. THOMAS and Etta Mae Thomas, Debtors.

Bankruptcy No. 94-50260.

United States Bankruptcy Court, W.D. Missouri.

June 21, 1995.

Gary W. Collins, Gary W. Collins Law Office, Kansas City, MO, for debtors.

Robert A. Pummill, Pummill & Rubin, P.C., Kansas City, MO, for Agribank.

AMENDED MEMORANDUM OPINION

ARTHUR B. FEDERMAN, Bankruptcy Judge.

Debtors filed a Chapter 11 bankruptcy case, which was subsequently converted to Chapter 7. Agribank, FCB, Successor in interest to the Farm Credit Bank of St. Louis ("Agribank"), has moved this Court to lift the automatic stay as to a 200 acre farm upon which Agribank holds a promissory note and Deed of Trust. In response, the debtors moved to reaffirm their obligation to Agribank, which was current at the time of conversion. This is a core proceeding under 28 U.S.C. § 157(b)(2)(G) over which the Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b), 157(a), and 157(b)(1). For the reasons set forth below I hold the following: (1) Agribank's motion to terminate the automatic stay is denied, provided debtors comply with the terms of the accompanying Order and their loan agreement with Agribank; (2) within sixty (60) days from entry of this Court's original Order, or by July 21, 1995, debtors must (a) pay Agribank the sum of $4,154.51, which is sufficient to bring the debt to Agribank current; (b) pay any other monthly payments which have come due since the hearing held on April 12, 1995; and (c) cure any default in payment of real estate taxes on said 200-acre farm; (3) debtors' oral motion to reaffirm their obligation to Agribank, over the objection of Agribank, is sustained; and (4) Agribank's attorney's fees and costs are limited to $3,000.00.

On December 20, 1977, debtors executed a promissory note (the "Note") with Agribank for the sum of $168,000.00 to be amortized over twenty-five years at 8.5% interest. The Note is secured with Agribank stock and a Deed of Trust on a 200 acre farm in Platte County, Missouri described as follows:

The Southwest Quarter of the Southwest Quarter of Section 21; the East Half of the Southwest Quarter of Section 21; and the West Half of the Southeast Quarter of Section 21; all in Township 52 North, Range 22 West of the Fifth Principal Meridian. Subject to all public and private roads and easements.

According to debtors' schedules, the farm is also encumbered by a second Deed of Trust in the sum of $575,000.00 held by Etta Thomas's mother, Etta Vivian Robert. Agribank claims it is owed $103,270.35, including payments which came due since the conversion to Chapter 7. Such figure includes attorney's fees of $5,000.32 for services rendered through March 22, 1995. Agribank and debtors agree that the property has a value of $100,000.00, and that the stock has a value of $8,400.00.

Debtors' attorney has indicated that after the conversion to Chapter 7 on February 22, 1995, he advised debtors not to make further payments on the Note until such time as the Chapter 7 trustee decided whether to abandon the farm. On March 13, 1995, Agribank filed this motion for relief based on the failure to make the payment due March 1, 1995.¹ Upon the trustee's Notice of Abandonment, announced at the section 341 meeting of creditors on March 21, 1995, debtors' counsel stated he advised debtors to submit payment to Agribank. Agribank refused to accept payment. Both Charles Vandivert, Senior Credit Officer for Agribank, and Cecil Thomas testified that, over the life of the Note, payments have occasionally been late enough to trigger a late payment penalty, but Agribank has never accelerated the debt or sent notice of foreclosure to debtors. Therefore, Agribank cannot now declare a default because of such late payments. Capital City Motors, Inc. v. Thomas Garland, Inc., 363 S.W.2d 575, 578 (Mo.1962); Josephson v. Nat'l Screen Serv. Group, Inc., 810 S.W.2d 708, 709 (Mo.Ct.App.1991).

It is undisputed that the only missed payments on the Note are for March and April of 1995. Cecil Thomas testified that he could and would bring the note current provided Agribank would accept such payment.² Mr. Thomas notified Agribank, through his counsel, of that willingness on March 22, 1995. Mr. Thomas did, however, challenge the balance due on the Note because of the addition to the principal balance of attorney's fees incurred over the course of this bankruptcy case. He therefore proposed that this Court determine the amount of attorney's fees to be charged against the debtor. Agribank rejected that proposal, indicating in a March 27, 1995, letter that an offer to pay the arrearages, and to have the fees determined by the Court, was not acceptable. (See, Agribank Motion to Alter or Amend, filed June 1, 1995, at 12).

At the trial on its motion for relief Agribank indicated, both through its counsel and its testifying officer, that it now would not accept debtors' reaffirmation even if all attorney's fees claimed by it were paid. Agribank now anticipates that the debtors will default at some time in the future, and simply does not want to do business with them anymore. As shown, the original loan has approximately seven years remaining on its term.

Preliminarily, I make certain findings and conclusions as to the status of the note under Missouri law. I find that Agribank has not accelerated the note. I next find that the debtors have the option to cure any default until an acceleration occurs. Miller v. Jones, 635 S.W.2d 360, 362 (Mo.Ct. App.1982); Don Anderson Enterprises, Inc., v. Entertainment Enterprises, Inc., 589 S.W.2d 70, 72 (Mo.Ct.App.1979). A motion for relief from the automatic stay, to allow the creditor to accelerate the debt and foreclose, cannot itself constitute such an acceleration. Therefore, under Missouri law, outside of bankruptcy, the debtors would have the opportunity to cure any existing default. Ordinarily, a debtor would cure such a default, prior to acceleration, by tendering the amount due. However, where there is a dispute between the parties as to the proper amount due, no formal tender is necessary. Mills v. First Nat'l Bank of Mexico, 661 S.W.2d 808, 812 (Mo.Ct.App.1983) (holding that "where the amount demanded is excessive and tender of a lesser amount than the demand would be unavailing, it is unnecessary to go through the ceremony of tender"). Here, the parties disagreed as to the amount of attorney's fees which should be added to the principal of the note. Further, attorney's fees accrue after default and need not be included in the tender. Id. at 813. And, in any event Agribank's position is that it no longer wishes to do business with these debtors, even if all past due amounts and attorney's fees, are paid. Thus no formal tender was required. Finally, I find and conclude that, under Missouri law, debtors are given a reasonable period of time in which to cure where, as here, the creditor had previously accepted one or more late payments without acceleration. Morgan v. Bryant, 673 S.W.2d 129, 130 (Mo.Ct.App.1984).

In sum, then, Missouri law gives these debtors the right to cure any existing default within a reasonable period of time after the amount owed is ascertained.

Debtors desire to cure existing defaults and reaffirm their obligation to Agribank on its original terms. That desire creates two issues. The first is whether the debtor can reaffirm a current obligation without the consent of the creditor. The second is the reasonable attorney's fees owed by these debtors to Agribank.

A. REAFFIRMATION

Agribank claims it cannot be forced to accept a debtor's reaffirmation of a debt — even though that debt was current at the time of the conversion to Chapter 7 — and that its motion for relief from the stay, to allow it to exercise its remedies under state law, should be granted.

A basic prerequisite to the granting of a motion for relief from the stay is that there be some remedy available to the creditor. Otherwise, the granting of relief would serve no purpose. See, Chrysler Credit Corp. v. Schweitzer (In re Schweitzer), 19 B.R. 860, 866 (Bankr.E.D.N.Y.1982) (citing In re Abel, 17 B.R. 424 (Bankr.D.Md.1981)) (holding that relief from stay proceedings cannot be used to confer substantive rights which a creditor does not possess by contract or state law). The issue, then, is whether the filing of bankruptcy, in and of itself, creates a default under the agreement between the parties. Here, neither the Note nor the Deed of Trust provides that the filing of a bankruptcy petition constitutes an event of default. Therefore, since debtors have remained current in their payments until conversion to Chapter 7, and since Agribank notified the debtors after the conversion that it would no longer accept payments, there is no default. Consequently, Agribank has no remedy under state law, and the motion for relief is denied.

It should be pointed out that loan documents often contain ipso facto clauses, which provide that the filing of a bankruptcy petition constitutes an event of default. See, Riggs Nat'l Bank of Washington v. Perry (In re Perry), 729 F.2d 982, 985 (4th Cir. 1984) (where the court refused to lift the automatic stay as to a debtor who was current in his payments, holding that Ipso facto clauses are unenforceable as a matter of law). Such clauses are based on the premise that a bankruptcy discharge causes a material change in the contract between lender and borrower. Chrysler Credit Corp. v. Schweitzer (In re Schweitzer), 19 B.R. 860, 868 (Bankr.E.D.N.Y.1982). See also Ned W. Waxman, "Redemption or Reaffirmation: The Debtor's Exclusive Means of Retaining Possession of Collateral in Chapter 7," 56 U.Pitt L.Rev. 187 (1994). When making a loan a secured lender typically relies on both the collateral pledged and the personal guaranty of the borrowers. If the borrowers file a bankruptcy petition, they are usually able to discharge their personal guaranty. Thus, if such borrowers are allowed to...