Matter of Cliff's Ridge Skiing Corp.
| Decision Date | 05 February 1991 |
| Docket Number | Bankruptcy No. GM 87-00206. |
| Citation | 123 BR 753 |
| Parties | In the Matter of CLIFF'S RIDGE SKIING CORPORATION, d/b/a Marquette Mountain, Debtor. |
| Court | U.S. Bankruptcy Court — Western District of Michigan |
James R. Jessup, Marquette, Mich., for First Nat. Bank & Trust Co. of Marquette.
W. Scott Chilman, Ishpeming, Mich., for Cliff's Ridge Development Co. Robert D. Mollhagen, Lansing, Mich., for First of America Bank — Marquette, N.A.
OPINION RESOLVING ENTITLEMENT TO CHAIRLIFT SALE PROCEEDS
In this contested matter, three creditors are fighting over sale proceeds from a ski chairlift. Although the parties have attempted to settle this matter, this has not been possible. The Court will therefore grapple with the issues and render a decision.
The issues presented are many. Was the chairlift a fixture? Which creditor has, or creditors have, a valid and perfected mortgage interest or security interest in the chairlift and the proceeds? Does one of the creditors have a perfected purchase money security interest in the chairlift and the proceeds? What is the priority of the creditors' respective interests? Did one creditor validly subordinate its interest to another creditor? Is there a circular priority problem? If so, how should it be resolved?
On October 28, 1987, Cliff's Ridge Skiing Corporation, ("Debtor"), filed for relief under chapter 11 of the Bankruptcy Code. 11 U.S.C. §§ 101-1330. On January 4, 1988, the case was converted to a chapter 7 case. The Debtor's assets were sold, after notice and hearing, pursuant to a court order dated July 28, 1988. The sale proceeds were distributed to secured creditors, or retained by the estate, pursuant to a court order dated December 27, 1988. One of the assets sold was a Riblet chairlift-2 place, No. 6470, 75 HP electric drive ("chairlift"). The sale proceeds received from the chairlift were $22,500.00. These proceeds were placed in an interest-bearing escrow account pending a court determination as to creditors' entitlement to the proceeds.
Three creditors, First National Bank & Trust Company of Marquette ("First National"), Cliffs Ridge Development Co. ("Cliff's Ridge Dev."), and First of America Bank-Marquette, N.A., formerly known as Union National Bank & Trust Company of Marquette ("FOA"), each assert they are legally entitled to the escrowed proceeds and the interest earned therefrom. The chapter 7 trustee received notice of this proceeding. The trustee's counsel has informed the parties and the court that the bankruptcy estate now makes no claim to the chairlift proceeds.
Although this matter should have been commenced as an adversary proceeding pursuant to Bankruptcy Rule 7001(1) and (2), relief was sought by a motion filed by First National. The parties consented to utilize a contested matter procedure under Bankruptcy Rule 9014 to achieve a resolution of their dispute. In accordance with Bankruptcy Rule 9014, in its Pretrial Order, the court mandated that all rules in Part VII of the Bankruptcy Rules are applicable to this proceeding.
All parties have agreed, and the court concludes, that jurisdiction exists pursuant to 28 U.S.C. § 1334. The parties have agreed that this matter is a core proceeding under 28 U.S.C. § 157(b)(2)(K), (N), and (O). In the event this adversary proceeding may not be a core proceeding, the parties have agreed the court may enter a final order, subject to their respective rights of appeal, in accordance with 28 U.S.C. § 157(c)(2).
At the hearing which took place on July 27, 1989, in Marquette, Michigan, the parties submitted a Stipulated Statement of Facts. The parties also stipulated that pages 1-28 of a deposition of Paul Walker Brown ("Brown"), taken on July 10, 1989, be admitted into evidence. The parties also stipulated that certain exhibits should be considered by the court; those exhibits have been marked and admitted into evidence as Exhibits A-D and F-GG.
This opinion shall constitute the court's findings of fact and conclusions of law as required by Bankruptcy Rule 7052. Because some of the issues presented may involve mixed questions of fact and law, any finding that should properly be considered as a conclusion and any conclusion that should properly be considered as a finding shall be so construed.
On July 24, 1980, FOA loaned Cliff's Ridge Dev. the sum of $300,000 pursuant to a note. (Exh. A.) Repayment of this indebtedness was secured by Cliff's Ridge Dev. executing a mortgage and a security agreement each dated July 24, 1980. (Exhs. B and C.) The mortgage was properly perfected by recordation with the Marquette County Register of Deeds on August 1, 1980. The mortgage language granted FOA an interest in certain real property owned by Cliff's Ridge Dev. together with "all improvements now or hereafter created on the property . . . and all fixtures now or hereafter attached to the property, all of which, including replacements and additions thereto, shall be deemed to be and remain a part of the property covered by this mortgage." The security interest which granted FOA an interest in all tangible and intangible personal property of Cliff's Ridge Dev. was perfected by the filing of a financing statement with the State of Michigan, Secretary of State, U.C.C. Division, on July 29, 1980. No fixture filing was made with the Marquette County Register of Deeds.
The indebtedness owed to FOA, which is secured by its mortgage, has not been fully satisfied. FOA is now owed an amount which is greater than the escrowed chairlift proceeds and the interest earned therefrom. (Stipulated Statement of Facts, ¶ 2.)
During summer or early fall of 1981, Cliff's Ridge Dev. entered into discussions with Brown, a prospective purchaser, regarding a sale of all of Cliff's Ridge Dev.'s assets. A Preliminary Sales Agreement was properly and validly executed by Brown and Cliff's Ridge Dev. in November, 1981. (Exh. F; Brown Deposition, p. 6; Stipulated Statement of Facts, ¶ 7.) All rights and duties pursuant to this agreement were subsequently assigned to the Debtor. (Stipulated Statement of Facts, ¶ 7.) After execution of the sales agreement, but before closing of the sale, the Debtor operated the ski hill with the cooperation of a principal of Cliff's Ridge Dev. (Brown Deposition, p. 6.) On February 4, 1982, the Debtor assumed Cliff's Ridge Dev.'s obligations owed to FOA. (Exh. GG.)
The Debtor determined it was advisable to purchase an additional chairlift and the purchase was discussed with a principal of Cliff's Ridge Dev. (Brown Deposition, p. 7.) In April or May, 1982, the Debtor contacted Breckenridge Ski Area to purchase the chairlift on a cash-on-delivery basis. (Stipulated Statement of Facts, ¶ 12.) The price paid for the chairlift by the Debtor was $65,000. In addition, the Debtor paid $10,000 for shipping, $7,500 for engineering, and approximately $80,000 for erection of the chairlift. The Debtor paid the shipping and engineering costs at, or shortly after, the time they were incurred. (Stipulated Statement of Facts, ¶ 16.) The parties agree the other terms of the sale are not now known; no sale documents were introduced into evidence.
The chairlift was delivered in August, 1982. The erection of the towers for the chairlift commenced in September, 1982, with the concrete pads having been poured prior to the erection. The erection of the towers was completed by November 15, 1982. The cable was strung during the latter part of November, 1982 and was spliced on December 2, 1982. The chairlift was tested with the chairs in place on December 7, 1982. The State of Michigan certified the chairlift for operation on December 23, 1982. (Stipulated Statement of Facts, ¶ 11.) The chairlift was specially engineered and modified for a slope on the ski hill real property. Although the chairlift is attached to the real property, it can be severed from the real property, removed and sold. (Stipulated Statement of Facts, ¶ 16.)
After delivery of the chairlift, and sometime during the erection of the chairlift, the Debtor sought financing from the Economic Development Corporation of the County of Marquette ("EDC"). On or about September 10, 1982, the Debtor submitted its Project Plan to the EDC. (Exh. G.) The Project Plan stated that the Debtor intended to (1) purchase Cliff's Ridge Dev.'s real property, (2) expand the ski hill by constructing the chairlift, (3) finance the project through the issuance of revenue notes in the total amount of up to $175,000, (4) obtain financing from First National, and (5) secure repayment by granting a security interest in the chairlift improvement. Local government entities each considered the request that the Debtor's Project Plan be approved at various meetings or hearings. (Exhs. H, I, J, K, L, M, N, O, P, Q, and R.) At an EDC meeting on November 22, 1982, the Debtor's Project Plan was approved and the EDC representatives were authorized to sign the loan documents. (Exh. S.) No evidence exists at this time that Cliff's Ridge Dev. had any actual knowledge of the Debtor's request to have its Project Plan approved by the EDC. (Stipulated Statement of Facts, ¶ 9.) Based upon the record, the court finds that Cliff's Ridge Dev. also lacked any implied knowledge on the Debtor's Project Plan.
On November 22, 1982, Cliff's Ridge Dev. conveyed its ski hill real property to the Debtor pursuant to a warranty deed. (Exh. F.) The deed given to the Debtor was subject to the prior mortgage granted by Cliff's Ridge Dev. to FOA dated July 24, 1980. (Stipulated Statement of Facts, ¶ 6.) Also on November 22, 1982, the Debtor granted Cliff's Ridge Dev. a mortgage respecting the ski hill real property. The mortgage was properly perfected by recordation with the Marquette County Register of Deeds on November 23, 1982. The mortgage states it is "a second mortgage, the prior mortgage of FOA for the SBA debt described in said preliminary sales...
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