Sunberg, In re

Decision Date07 March 1984
Docket NumberNo. 83-1726,83-1726
Citation729 F.2d 561
Parties, Bankr. L. Rep. P 69,728, 37 UCC Rep.Serv. 1700 In re Dwayne SUNBERG, Patricia Sunberg, Engaged in farming, Debtors, Appellants.
CourtU.S. Court of Appeals — Eighth Circuit

Steven H. Krohn, Frank W. Pechacek, Jr., Smith, Peterson, Beckman & Willson, Council Bluffs, Ia., for appellee.

C.R. Hannan, Perkins, Sacks & Hannan, Council Bluffs, Ia., for debtors, appellants.

Before HEANEY, ROSS and FAGG, Circuit Judges.

HEANEY, Circuit Judge.

Dwayne and Patricia Sunberg filed a voluntary petition in bankruptcy under Chapter 11 of the 1978 Bankruptcy Code on April 12, 1983. They appeal from a May 16, 1983, order of the bankruptcy court, 35 B.R. 777, denying their application to incur secured debt under 11 U.S.C. Sec. 364 (1982). They allege that the court erred in finding that their benefits under the 1983 payment-in-kind program of the United States Department of Agriculture (USDA) were general intangibles pledged as security under the after-acquired clause in a security agreement entered with the Production Credit Association (PCA) in 1982. We affirm.

The Sunbergs have farmed in the Hamlin, Iowa, area since 1961. They owned 495 acres and rented another 400 acres, on which they primarily planted corn and soybeans. Since 1980, they regularly borrowed money from PCA and owed it $302,669.90 in principal and $149,823.90 in interest when this action was brought. In 1982, the Sunbergs and PCA entered a second agreement to secure the growing indebtedness, giving PCA a security interest, inter alia, in the Sunbergs' "existing or hereafter acquired * * * crops, growing crops, livestock, farm products, equipment, inventory, fixtures, contract rights, accounts and general intangibles." PCA perfected this security interest by filing an amended financing statement with the Iowa Secretary of State on April 20, 1982.

On February 9 and March 9, 1983, Dwayne Sunberg signed application forms and contracts to participate in the federal payment-in-kind (PIK) program, under which he would devote approximately 198 acres of his owned and rented land to non-crop use in 1983 in return for 12,152 bushels of surplus corn from the United States. See Special Program of Payment in Kind for Acreage Diversion for 1983 Crops, 48 Fed.Reg. 1476, 9232 (1983) (to be codified at 7 C.F.R. Secs. 770.1-.6). The Commodity Credit Corporation (CCC) of the USDA approved these contracts on March 16, 1983.

During the last half of 1982 and into 1983, the Sunbergs could not meet their financial obligations because of high overhead expenses and low crop prices. They filed their voluntary petition in bankruptcy on April 12, 1983, and made application to incur secured debt on April 13, 1983. They intended to pledge the PIK benefits under the March 16 contracts, livestock, and their 1983 crops as security for a loan from the Farmers Home Administration (FmHA). PCA objected to the application on the ground that the PIK benefits were already encumbered under the 1982 security agreement between the Sunbergs and PCA. The bankruptcy court agreed with PCA and denied the Sunbergs' application on May 16, 1983. The parties agreed to a direct appeal before this Court under 28 U.S.C. Sec. 1293(b) (Supp. V 1981).

The Sunbergs attempt to avoid the lien on their PIK benefits by characterizing those benefits as property acquired after the commencement of their bankruptcy case under 11 U.S.C. Sec. 552(a) (1982). If PCA's security interest covered the PIK contracts and the proceeds of pledged collateral prior to the Sunberg's petition in bankruptcy, however, the proceeds of those contracts realized after the petition would continue to be encumbered absent a bankruptcy court order to the contrary based on the equities of the particular case. Id. Sec. 552(b). The Sunbergs' 1982 security agreement with PCA explicitly incorporated a provision stating that "[p]roceeds of collateral are also covered," see Iowa Code Ann. Secs. 554.9203(3), 554.9306(1) (West Supp.1983), and the bankruptcy court found no equities requiring disregard of the agreement. Thus, their position on appeal reduces to two questions: (1) whether their rights under the March 16, 1983, PIK contracts were proper collateral to secure PCA's loans to them as a matter of state commercial law; and (2) whether federal law allowed PCA to assert a security interest in the PIK benefits. The bankruptcy court answered both questions in the affirmative. We agree.

First, the Iowa Commercial Code clearly allows a security interest to attach to general intangibles, which are defined in a catch-all manner to include "things in action." See id. Secs. 554.9102(1)(a), 554.9106. Furthermore, the statutory definition of "account" in Iowa includes a right to payment for services rendered "whether or not it has been earned by performance." Id. Sec. 554.9106. The Sunbergs do not deny that the security agreement in this case could reach after-acquired property which was otherwise valid collateral under Iowa law. See id. Sec. 554.9204(1). Given the breadth of the statutory definitions of collateral in Iowa, we agree with the bankruptcy court that the Sunbergs' rights under the...

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