United Virginia Bank/Seaboard Nat. v. B. F. Saul Real Estate Inv. Trust

• Decision Date: 20 February 1981
• Docket Number: 80-1263,Nos. 80-1262,s. 80-1262
• Citation: 641 F.2d 185
• Parties: 30 UCC Rep.Serv. 1431 UNITED VIRGINIA BANK/SEABOARD NATIONAL, a National Banking Association, Appellant, and Virginia National Bank, a National Banking Association, Plaintiff/Intervenor, v. B. F. SAUL REAL ESTATE INVESTMENT TRUST, Appellee, and Northeast Contract Drapery, Inc., Charles L. Marcus, Trustee; and National Hotel Management Corporation, Defendants. In re TRIANGLE INN ASSOCIATES, a Virginia Limited Partnership, d/b/a Holiday Inn Scope, Bankrupt. VIRGINIA NATIONAL BANK, a National Banking Association, Appellant, and United Virginia Bank/Seaboard National, a National Banking Association, Plaintiff/Intervenor, v. B. F. SAUL REAL ESTATE INVESTMENT TRUST, Appellee, and Northeast Contract Drapery, Inc., Charles L. Marcus, Trustee; and National Hotel Management Corporation, Defendants. In re TRIANGLE INN ASSOCIATES, a Virginia Limited Partnership, d/b/a Holiday Inn Scope, Bankrupt.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 185

641 F.2d 185

30 UCC Rep.Serv. 1431

UNITED VIRGINIA BANK/SEABOARD NATIONAL, a National Banking

Association, Appellant, and Virginia National Bank, a National Banking Association, Plaintiff/Intervenor, v. B. F. SAUL REAL ESTATE INVESTMENT TRUST, Appellee, and Northeast Contract Drapery, Inc., Charles L. Marcus,

Trustee; and National Hotel Management

Corporation, Defendants.

In re TRIANGLE INN ASSOCIATES, a Virginia Limited

Partnership, d/b/a Holiday Inn Scope, Bankrupt.

VIRGINIA NATIONAL BANK, a National Banking Association, Appellant,

and

United Virginia Bank/Seaboard National, a National Banking

Association, Plaintiff/Intervenor, v. B. F. SAUL REAL ESTATE INVESTMENT TRUST, Appellee, and Northeast Contract Drapery, Inc., Charles L. Marcus,

Trustee; and National Hotel Management

Corporation, Defendants.

In re TRIANGLE INN ASSOCIATES, a Virginia Limited

Partnership, d/b/a Holiday Inn Scope, Bankrupt.

Nos. 80-1262, 80-1263.

United States Court of Appeals Fourth Circuit.

Argued Dec. 4, 1980.

Decided Feb. 20, 1981.

James L. Miller, Norfolk, Va. (Williams, Worrell, Kelly & Greer, Norfolk, Va., on brief), and Charles W. Best, Jr., Norfolk, Va. (Kaufman & Oberndorfer, Norfolk, Va., on brief), for appellant.

Robert B. Robbins, Washington, D. C. (Leslie A. Nicholson, Jr., David Lawrence Miller, Shaw, Pittman, Potts & Trowbridge, Washington, D. C., David H. Adams, Taylor, Walker & Adams, Norfolk, Va., on brief), for appellee.

Before HAYNSWORTH, Chief Judge, FIELD, Senior Circuit Judge, and PHILLIPS, Circuit Judge.

JAMES DICKSON PHILLIPS, Circuit Judge:

This appeal involves a challenge by two banks, United Virginia Bank (UVB) and Virginia National Bank (VNB) (collectively, the banks) to the validity of a security interest claimed by B. F. Saul Investment Trust (Saul Trust) in certain personal property included in the bankrupt estate of Triangle Inn Associates (Triangle) and used in operation of the Holiday Inn-Scope in Norfolk, Virginia. The banks have liens on this personal property, but the liens are junior to a deed of trust from Triangle to the Saul Trust under which the latter claims its security interest. The district court, affirming the bankruptcy judge, upheld the validity, and hence the priority, of the Saul Trust's claimed security interest. We affirm the district court.

I

To secure an indebtedness of $7 million, Triangle executed a deed of trust on December 15, 1972 for the benefit of the Saul Trust. The granting clause of this deed of trust refers only to the property described in Schedule A; that schedule, in turn, describes only real property. Under the "Definitions" section of the deed of trust, however, the "mortgaged property" is defined as the "land and the buildings and the fixtures and the personalty." "Personalty" is then defined as "all furniture, furnishings, equipment, machinery and all other personal property ... now or hereafter located (on the property) as more specifically described in Schedule B." This schedule was apparently never prepared and attached to the deed of trust, but the definition goes on to provide that Schedule B is not required to identify the property secured. Finally, "security agreement" is defined as the "security agreement contained in this Deed of Trust, wherein and whereby Grantor grants a security interest in the personalty and the fixtures to Beneficiary."

In the "Representations and Warranties" section of the deed of trust, the grantor warrants that it has "marketable title to the fixtures and personalty" free and clear of all encumbrances, with the exception of "some of the personalty (that) has been leased from others and is expressly excluded herefrom." Further, in the "Negative Covenants" section of the deed of trust, the grantor covenants that it "will not permit any of the fixtures or personalty to be removed without the consent of the Saul Trust unless the grantor replaces the article with another of equal suitability and value." In addition, the grantor gives the further assurance that it will execute any additional "financing statements ... or other security agreements which may ... be reasonably required to ... preserve the security of the mortgaged property." Finally, the Saul Trust is expressly empowered under the deed of trust to take possession of the "mortgaged property" upon default by the grantor in payment of the secured indebtedness, to operate the "mortgaged property" or to sell the "mortgaged property."

Execution of the deed of trust was followed on December 27, 1972 by the filing of a financing statement by the Saul Trust, which described the collateral as "one lot of personal property being the furniture, fixtures and equipment of and located in the Holiday Inn-Scope, Norfolk, Virginia." On June 16, 1975, Triangle and the Saul Trust entered into a "First Supplement to Deed of Trust," which provided for the substitution of trustees and the addition of a provision dealing with some ancillary warranty and indemnity agreements. On March 8, 1976, Triangle and the Saul Trust entered into a "Second Supplement to Deed of Trust," which added a provision authorizing the Saul Trust to bring in "independent management" to operate the Holiday Inn-Scope. Both supplements stated that, unless expressly referred to or treated in the supplements, all provisions of the original deed of trust remained in full force and effect; neither supplement made any reference to the Saul Trust's rights in the hotel personal property.

By deed of trust dated March 22, 1973, Triangle again conveyed the real and personal property of the Holiday Inn-Scope in trust to secure an indebtedness of $450,000 to UVB. UVB filed a financing statement covering the personal property. This deed of trust and financing statement constituted at least a second lien on the Holiday Inn-Scope personal property.

By deed of trust dated June 16, 1975, Triangle conveyed the real and personal property of the Holiday Inn-Scope in trust to secure an indebtedness of $1,688,149.88 to VNB. VNB also filed a financing statement covering the personal property. This deed of trust and financing statement constituted at least a third lien on the Holiday Inn-Scope personal property.

In September 1976 the Saul Trust commenced foreclosure proceedings against the Holiday Inn-Scope property following Triangle's default under its deed of trust to the Saul Trust. Triangle promptly filed a Petition for an Arrangement under Chapter XII of the old Bankruptcy Act, and the Saul Trust was compelled to suspend its foreclosure on the Holiday Inn-Scope property by the automatic stay that intervenes to protect the debtor's estate in a bankruptcy proceeding. See Bankr.R. 12-43.

The Saul Trust then filed a complaint for relief from the stay in which both UVB and VNB were allowed to intervene and answer. The banks argued that the Saul Trust could show no necessity for relief from the stay because the value of the property exceeded the Saul Trust's lien of $5.3 million. Both banks pointed to an appraisal prepared for the Saul Trust by the Real Estate Research Corporation that valued the Holiday Inn-Scope property at $6,675,000 on May 2, 1975. Included in this appraisal was a valuation of $675,000 for "furniture, fixtures & equipment." In denying the Saul Trust relief from the stay, the bankruptcy court relied heavily on its finding that the 1975 appraisal demonstrated that there was equity in the Holiday Inn-Scope property well in excess of the Saul Trust's lien on that property. In re Triangle Inn Associates, No. 76-954-N, slip op. at 5-8 (Bankr.Ct.E.D.Va. Dec. 29, 1976).

On April 1, 1977, Triangle filed its plan of arrangement. In its September 15, 1977 confirmation of that plan, the bankruptcy court noted that UVB and VNB were "enthusiastic in their support of the debtor's plan." In re Triangle Inn Associates, No. 76-954-N, slip op. at 5 (Bankr.Ct.E.D.Va. Sept. 15, 1977). A plan that the bankruptcy court could confirm was required to include adequate protection for creditors who refused to accept the plan. See Bankruptcy Act of 1898, ch. 541, § 461(11), as amended by Chandler Act of 1938, ch. 575, § 1, 52 Stat. 922 (repealed 1979). The Saul Trust refused to accept Triangle's plan, but the bankruptcy court concluded that it was reasonable to "cram down" the plan on the Saul Trust because "Saul is fully secured by virtue of the Inn's value (which included the value of the personal property) handsomely exceeding Saul's debt." In re Triangle Inn Associates, No. 76-954-N, slip op. at 5 (Bankr.Ct.E.D.Va. Sept. 15, 1977).

Despite the best efforts of all involved, Triangle was unable to fulfill its obligations under its plan of arrangement, and on January 17, 1979 the bankruptcy court entered an order granting the Saul Trust leave to take possession of the Holiday Inn-Scope and to foreclose on its deed of trust. In re Triangle Inn Associates, No. 76-954-N (Bankr.Ct.E.D.Va. Jan. 17, 1979). The property was bought in at foreclosure by the Saul Trust on February 12, 1979, and the trustee's deed conveyed to the Saul Trust all the personal property in which it held a security interest under its deed of trust.

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