Matter of LLL Farms

• Decision Date: 16 March 1990
• Docket Number: Bankruptcy No. 89-51405.
• Parties: In the Matter of LLL FARMS, Debtor.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Middle District of Georgia

111 B.R. 1016 (1990)

In the Matter of LLL FARMS, Debtor.

Bankruptcy No. 89-51405.

United States Bankruptcy Court, M.D. Georgia, Macon Division.

March 16, 1990.

Ben F. Easterlin, IV, Americus, Ga., for debtor.

George H. Myshrall, Jr., Atlanta, Ga., for Georgia Development Authority.

Walter Kelley, Albany, Ga., Chapter 12 trustee.

ROBERT F. HERSHNER, Jr., Chief Judge.

MEMORANDUM OPINION

LLL Farms, a Partnership, Debtor, filed a petition under Chapter 12 of the Bankruptcy Code on June 5, 1989. Debtor filed its Chapter 12 plan on November 6, 1989. Debtor filed an amendment to its Chapter 12 plan on January 17, 1990. Georgia Development Authority (Georgia Development) filed an objection to confirmation on January 2, 1990. A hearing was held on confirmation of Debtor's plan and Georgia Development's objection on January 9, 1990. The hearing was continued to and concluded on January 17, 1990. The Court, after considering the evidence presented and the arguments of counsel, now publishes this memorandum opinion.

Debtor is a general partnership composed of three sisters, each with a one-third interest. The partnership business is farming. The partners are Louise W. Veal, LaWanda W. Davis, and Lynn W. Martin. The sisters do not live on the farm property and do not farm the land themselves. Each has an outside job not associated with the farm. In October 1986, the sisters applied to Georgia Development for a farm loan. The purpose of the loan was to purchase 124.76 acres of land in Crisp County, Georgia. On January 23, 1987, the sisters signed a promissory note and deed to secure debt in favor of Georgia Development for $94,000. The loan application, promissory note, and deed to secure debt were signed by the sisters as individuals. They contend, however, that they were acting as a partnership.

The loan was to be repaid in twenty annual installments due on January 1 of each year. The first installment was due on January 1, 1988. The promissory note provides for variable rates of interest. Annual adjustments to the interest rate are determined by the Prime Rate.¹

Debtor defaulted on the first payment due January 1, 1988. Debtor also failed to make the 1989 and 1990 payments. Georgia Development accelerated the promissory note and began foreclosure proceedings. Debtor filed its bankruptcy petition the day before the foreclosure sale was to be held.

Debtor's plan proposes to repay the debt to Georgia Development in annual installments of $13,805.20 payable on December 31 of each year. The first payment is due on December 31, 1990. The plan provides for a fixed rate of interest of 10.2 percent.² The repayment term is thirty years. Georgia Development would retain its lien on Debtor's property until the debt is paid in full.

Debtor will fund its plan through farm income and rent from a house on the farm. Debtor intends to grow peanuts, raise cattle, feed-out livestock for other farmers, and plant pine trees. The sisters' father will live in and rent the farm house for $300 per month.³ Louise W. Veal testified that each sister will contribute $1,500 of personal money to fund any deficiency under the plan.

Georgia Development holds a fully secured claim in the amount of $127,716.29 as of December 31, 1989. Interest is accruing on this loan at $39.79 per day. The security is 157 acres in Crisp County, Georgia. This includes 124.76 acres which the sisters purchased with the Georgia Development loan and three plots of ten acres each which the sisters own as individuals.

Georgia Development objects to confirmation of Debtor's plan on three grounds. First, Georgia Development contends that Debtor is not eligible for relief under Chapter 12 because Debtor is not a "family farmer."⁴ Second, Georgia Development contends that Debtor's plan fails to pay present value on its secured claim as required by section 1225(a)(5)(B) of the Bankruptcy Code.⁵ Finally, Georgia Development contends that the purposed thirty-year repayment term is too long because it exceeds the maximum term for which Georgia Development can make a loan.

The first issue is whether Debtor qualifies as a "family farmer." Georgia Development shows that the loan application, promissory note, and deed to secure debt were signed by the three sisters as individuals. Georgia Development questions whether Debtor is a partnership. The sisters assert that Georgia Development knew that they were acting as a partnership. In Hayes v. Irwin,⁶ the United States District Court for the Northern District of Georgia stated:

Generally speaking, a partnership is a voluntary agreement between two or more persons to contribute their money, property, or skill to the operation of a joint business or common enterprise for their common benefit and to divide the profits and bear the losses in certain proportions. See Floyd v. Kicklighter, 139 Ga. 133, 76 S.E. 1011 (1912); Escoe v. Johnson, 110 Ga.App. 252, 138 S.E.2d 330 (1964); Russell v. Strain, 69 Ga.App. 654, 26 S.E.2d 460 (1943). A partnership may be created for a single venture or enterprise. An agreement to form a partnership need not be in writing, for the true determinant of a partnership is the objective intent of the parties involved. The language which is used is a primary factor in determining the intent of the parties with respect to any agreement, and when ascertained, it will prevail over all other considerations. Chalkley v. Ward, 119 Ga.App. 227, 166 S.E.2d 748 (1969). See also Kennedy v. Thruway Service City, Inc., 133 Ga.App. 858, 212 S.E.2d 492 (1975).

541 F.Supp. at 415.

The sisters agreed to purchase and operate the farm as a joint business for their common benefit and goals. The Court is persuaded that Debtor is a partnership. Georgia Development asserts that it would not have made a loan to just one of the sisters. Georgia Development knew that the sisters had outside jobs and would not actually "work the land" themselves. Georgia Development made its loan to the sisters based on their collective assets and abilities to repay. The Court is persuaded that Georgia Development dealt with the sisters collectively rather than individually. Georgia Development should therefore not complain about the existence of the partnership.

Section 101(17)(B) of the Bankruptcy Code⁷ provides:

(17) "family farmer" means —

. . . .

(B) corporation or partnership in which more than 50 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

(i) more than 80 percent of the value of its assets consists of assets related to the farming operation;

(ii) its aggregate debts do not exceed $1,500,000 and not less than 80 percent of its aggregate noncontingent, liquidated debts (excluding a debt for one dwelling which is owned by such corporation or partnership and which a shareholder or partner maintains as a principal residence, unless such debt arises out of a farming operation), on the date the case is filed, arise out of the farming operation owned or operated by such corporation or such partnership; and

(iii) if such corporation issues stock, such stock is not publicly traded;

11 U.S.C.A. § 101(17)(B) (West Supp.1989).

All of Debtor's equity is owned by three sisters. The sisters are all related, and one of the sister's son conducts the farming operation. See In re Schaurer Agricultural Enterprises, 82 B.R. 911, 912 (Bankr.S.D.Ohio 1988) (partnership farming business owned by two brothers qualifies as a Chapter 12 family farmer).

Debtor scheduled its only asset as 157 acres of real property in Crisp County, Georgia. The market value is at least $127,716.29⁸. Louise W. Veal testified that the farm house is insured for $60,000. Georgia Development does not contend that the house is an asset not related to the farming operation. Furthermore, the farm house was on the property when Georgia Development extended the loan. Its value helps to fully secure Georgia Development's claim. Debtor's aggregate debts do not exceed $1,500,000, and all of its debts arise out of the farming operation.

The Court is persuaded that Debtor's business is a "farming operation."⁹ Debtor plants crops and raises livestock. These are certainly traditional farming operations. The majority of the 157 acres is devoted to the farming operation.

The eligibility issue turns on whether Debtor, through its partners, conducts the farming operation. The sisters do not live on the farm property and do not perform the actual farm labor. Louise W. Veal, however, testified that her twenty-five-year-old son and his two full-time helpers will farm the land. He is a full-time farmer and will work about one day per week on the partnership farm.

All three sisters have outside jobs. The majority of their income comes from non-farming operations. The Court is persuaded, however, that this is a common practice in farming. The Georgia Department of Agriculture recently stated:

A study by agricultural economists at the University of Georgia shows that Georgia farmers increasingly rely on off-farm employment. A 1983 USDA study showed that between 47 percent and 66 percent of Georgia farm family income came from outside employment; now experts say that figure is increasing.

Farmers & Consumers Market Bulletin, Vol. 77, No. 4, January 31, 1990, at 1, col. 4. See also In re Schaurer Agricultural Enterprises, 82 B.R. at 913 (Congress intended to protect the family farmer entity in which one or a small number of the entire family is engaged in the farming operation while other members of the family have ownership, but substantial other nonfarm income to sustain themselves).

Louise W. Veal testified that the sisters purchased and operate the farm for their father. The Court is persuaded that the farm is not simply a tax shelter, but is the kind of operation which Congress intended to help through Chapter 12. The Court finds that...