N.S. Garrott & Sons, In re
| Decision Date | 09 September 1985 |
| Docket Number | 84-2281,Nos. 84-2250,s. 84-2250 |
| Citation | 772 F.2d 462 |
| Parties | 13 Collier Bankr.Cas.2d 814, 13 Bankr.Ct.Dec. 889, Bankr. L. Rep. P 70,727 In re N.S. GARROTT & SONS and Eastern Arkansas Planting Company, a Joint Venture. N.S. GARROTT & SONS, an Arkansas General Partnership, Appellee, Eastern Arkansas Planting Company, an Arkansas General Partnership, Appellee, v. UNION PLANTERS NATIONAL BANK OF MEMPHIS and Crittenden Abstract & Title Co., Inc. Chicago Title Insurance Company, Intervenor, Appellant. In re N.S. GARROTT & SONS and Eastern Arkansas Planting Company, a Joint Venture. N.S. GARROTT & SONS, an Arkansas General Partnership, Appellee, Eastern Arkansas Planting Company, an Arkansas General Partnership, Appellee, v. UNION PLANTERS NATIONAL BANK OF MEMPHIS, Appellee, Crittenden Abstract & Title Co., Inc., Appellant, Chicago Title Insurance Company, Intervenor. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Scott T. Vaughn, Little Rock, Ark., for appellant.
Susan Gunter, Little Rock, Ark., for appellee.
Before ROSS and JOHN R. GIBSON, Circuit Judges, and MEREDITH, * District Judge.
This case arises out of Chapter 11 proceedings in bankruptcy. The debtors, N.S. Garrott & Sons, an Arkansas General Partnership; Eastern Arkansas Planting Company, an Arkansas General Partnership; and N.S. Garrott & Sons and Eastern Arkansas Planting Company, an Arkansas Joint Venture, filed a complaint for turnover of a fund held by Union Planters National Bank (Union Bank). Crittenden Abstract & Title Co., Inc. (Crittenden or appellant), who opposed the turnover request, was added to the complaint as a party defendant, and Chicago Title Insurance Company (Chicago Title or appellant), who also opposed the turnover of the fund, was permitted to intervene. The bankruptcy court held the fund was property of the estate, ordered the fund turned over to the debtors and the district court affirmed. We affirm in part but remand the case to the district court with directions.
In early 1981 the debtor, N.S. Garrott & Sons, wanted to borrow $2,850,000 from the Federal Land Bank of St. Louis (Land Bank) and to secure the loan by a mortgage on two farms, one owned by the debtor and the other owned by Evelyn Montgomery and other individuals (nondebtor owners). Both farms were subject to a first mortgage. The farm owned by the debtor was subject to a first mortgage in favor of Connecticut Mutual Life Insurance Company (Connecticut Mutual) in the principal amount of $1,425,057.98. The other farm was subject to a first mortgage in favor of Connecticut General Life Insurance Company (Connecticut General) in the principal amount of $282,000. Both mortgages were low interest mortgages and contained provisions for prepayment penalties.
The existence of the Connecticut Mutual and Connecticut General mortgages presented an obstacle to the debtor's acquisition of the loan from the Land Bank because the Land Bank is prohibited by federal statute, 12 U.S.C. Sec. 2017, 1 to make a loan on real property unless it receives the first mortgage on the property. To circumvent that obstacle, the debtors obtained, through Crittenden, a written commitment for title insurance on the farms that did not reflect either of the Connecticut mortgages and that showed Chicago Title as the insurer.
On March 25, 1981, N.S. Garrott & Sons and the nondebtor owners of the farms executed a 35-year promissory note in the amount of $2,850,000 in favor of the Land Bank. The note was secured by "first" mortgages on the two farms.
On March 30, 1981, N.S. Garrott & Sons and some of the nondebtor owners of the two farms executed an escrow agreement On the same day, March 30, 1981, Crittenden executed a custody agreement with Union Bank. In the custody agreement, Crittenden agreed to deposit the funds received from the owners of the two farms pursuant to the escrow agreement, and Union Bank agreed to manage the funds as directed by Crittenden. Also on March 30, 1981, Union Bank received $1,707,358 and established Crittenden's account. Thereafter payments were made to the Connecticut mortgage holders.
with Crittenden. The escrow agreement, drafted by Crittenden, states that the owners of the two farms agree to pay to Crittenden $1,707,358 "for the purpose of having [Crittenden] deposit the same in an Escrow Account with a designated Bank or Banks for the purpose of paying the future payments due on the [Connecticut mortgages] so that all payments will be made by [Crittenden] on the dates that the same become due." The agreement provided that the deposited $1,707,358 was to be invested "in order that the payments of principal and interest due Connecticut Mutual Life Insurance Company and Connecticut General Life Insurance Company shall be made on time." The agreement further provided that "[a]ll interest earned by the investment of said funds shall become a part of the Escrow Fund and shall be held by [Crittenden] for payment of principal and interest due on [the Connecticut mortgages]" and that the excess interest should be withdrawn by Crittenden and paid to the owners of the two farms. Crittenden was to consult with the owners of the two farms regarding the investment of the funds, but in the event of a disagreement, the decision of Crittenden was final and controlling. The agreement could not be changed orally. Further, if the lands were sold, the mortgages were to be fully paid from the Escrow Fund
On or about June 10, 1981, Crittenden issued a title policy to the Land Bank regarding the two farms that did not reflect the Connecticut mortgages.
Approximately a year later, the debtor, N.S. Garrott & Sons, executed a letter of credit agreement with Union Bank under which Union Bank issued a standby letter of credit in favor of Wells Fargo Ag. Credit Corp. (Wells Fargo). In connection with the letter of credit agreement, the debtor executed a promissory note in the amount of $250,000 and granted Union Bank a security interest in the excess interest not needed to pay the Connecticut mortgages.
On November 15, 1983, the three separate debtors, the N.S. Garrott & Sons partnership, the Eastern Arkansas Planting Company partnership and the joint venture, each filed Chapter 11 petitions in bankruptcy court. The petitions were consolidated. On January 5, 1984, the debtors filed a complaint for a turnover order against Union Bank requesting that the bank turn over the funds in the Crittenden account. On January 13, 1984, debtors amended the complaint to name Crittenden as an additional party defendant. A hearing was held. Chicago Title was permitted to intervene and to file briefs. Crittenden and Chicago Title opposed the turnover request. On February 21, 1984, the bankruptcy court entered Findings of Fact, Conclusions of Law and Turnover Order granting the relief sought by the debtors.
Crittenden and Chicago Title filed appeals in the district court. On August 30, 1984, the district court entered an order affirming the bankruptcy court decision in all respects. These appeals followed.
The central issue in this case 2 is whether the district court erred in ruling that the entire fund sought by the debtors' turnover complaint was property of the estate within the meaning of section 541. Section 541(a)(1) of the Bankruptcy Code provides that the estate is comprised of all legal or equitable interests of the debtor in property, wherever located, as of the date the case is commenced. 11 U.S.C. Sec. 541(a)(1). The legislative history makes note of the broad scope of the definition but also makes clear that the definition was not designed to enlarge the debtor's rights against others beyond those existing at the commencement of the case. S.REP. NO. 95-989, 95th Cong., 2d Sess. and H.R.REP. NO. 95-595, 95th Cong., 2d Sess. reprinted in 1978 U.S.CODE CONG. & AD.NEWS 5787, 5868, 6323. In fact, the broad definition of the debtor's estate is modified and limited by subsection (d) of section 541 of the Code. 11 U.S.C. Sec. 541(d) states:
Property in which the debtor holds, as of the commencement of the case, only legal title and not an equitable interest * * * becomes property of the estate under subsection (a) of this section only to the extent of the debtor's legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold.
Thus, where the debtor holds bare legal title without any equitable interest, the estate acquires bare legal title without any equitable interest.
The theme that the scope of the...
To continue reading
Request your trial
-
U.S. v. Runnels
...interest superior to the non-owning possessor's interest, in order to prevent unjust enrichment. See, e.g., In re N.S. Garrott & Sons, 772 F.2d 462, 467 (8th Cir.1985). The conditions in which a fiduciary's breach creates a constructive trust illuminate this analysis, which is based on the ......
-
In re Commodore Business Machines, Inc.
...Dept. of Taxation v. I.R.S., 501 U.S. 1212, 111 S.Ct. 2815, 115 L.Ed.2d 987 (1991); N.S. Garrott & Sons v. Union Planters Nat'l Bank of Memphis (In re N.S. Garrott & Sons), 772 F.2d 462, 466 (8th Cir.1985). 9 Allen-Bradley contends that (i) MOS discovered a leak in the tank in which it stor......
-
In re Foos
...interest, the estate acquires bare legal title without any equitable interest." N.S. Garrott & Sons v. Union Planters Nat'l Bank of Memphis (In re N.S. Garrott & Sons), 772 F.2d 462, 466 (8th Cir.1985). Express trusts are obviously within § 541(d)'s ambit. The issue here is whether an inter......
-
Olsen v. Reuter (In re Reuter)
...rights in the trust and in the trust property as determined by applicable state law as of the petition date. In re N.S. Garrott & Sons, 772 F.2d 462, 466 (8th Cir.1985); In re Schmitt, 215 B.R. 417, 421 (9th Cir. BAP 1997). Any interest which a debtor retains in a trust is property of the e......