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Osteroos v. Norwest Bank Minot, N.A.

United States District Court, D. North Dakota, Northwestern Division
Dec 18, 1984
604 F. Supp. 848 (D.N.D. 1984)

Summary

In Osteroos this court held that a security interest covering "all crops and products thereof" and the language of the financing statement covering "the proceeds and products of such crops" was sufficient to give the Bank, in that case, a security interest in farm PIK payments.

Summary of this case from In re Kingsley

Opinion

Civ. No. A4-84-201.

December 18, 1984.

Michael G. Sturdevant, Minot, N.D., for debtors and appellees.

Max D. Rosenberg, Bismarck, N.D., for appellant.


MEMORANDUM AND ORDER


Norwest Bank Minot (Norwest) appeals from an August 8, 1984 order of the Bankruptcy Court for the District of North Dakota. In that order, the Bankruptcy Court determined that the Debtors were entitled to proceeds of grain received under the federal Payment-In-Kind (PIK) program free of any claim of Norwest.

FACTS

The parties entered into a stipulation of the following relevant facts. In a May 19, 1982 security agreement, the Debtors pledged to Norwest as security for loans "[a]ll farm products of Debtor, whether now owned or hereafter acquired, including but not limited to all crops, whether annual or perennial, and the products thereof, and all feed, seed, fertilizer, medicines and other supplies used or produced by Debtor in farming operations." In a financing statement filed April 26, 1982, Norwest claimed a security interest in "[a]ll crops or other plant products now planted, growing or grown, or which are hereafter planted or become growing crops and the proceeds and products of such crops."

The Debtors harvested 86,735 bushels of corn from their 1982 farming operation, which they entered into the federal grain storage program. In 1983, the Debtors enrolled in the PIK program. Under the PIK program, in return for their agreement not to raise corn during the 1983 season, the Debtors received the corn which they had put into the federal grain storage program in 1982. The Debtors then sold that corn.

On May 9, 1983, the Debtors filed a voluntary petition under Chapter 11 of the Bankruptcy Code. On September 28, 1983, the Debtors initiated an adversary proceeding to obtain a determination of the nature and extent of Norwest's claims against the Debtors. By stipulation of the parties, that proceeding was limited to a determination of Norwest's interests in payments received under the 1983 PIK program.

The Bankruptcy Court determined that, because it held no security interest in the Debtors' "general intangibles," Norwest was entitled to none of the proceeds of the 1983 PIK payments.

DISCUSSION

On appeal, Norwest advances four theories in support of reversal of the Bankruptcy Court's order: 1). that Norwest is entitled to the PIK payments solely by reason of its lien on the Debtors' 1982 crops, 2). that Norwest is entitled to the PIK payments under that portion of the security agreement that covered "all farm products . . . and the products thereof," 3). that Norwest is entitled to the PIK payments as "substitution or replacement" for the Debtors' 1983 crop, and 4). principles of equity.

The Bankruptcy Court, in reaching its decision, relied on In Re Sunberg, 729 F.2d 561 (8th Cir. 1984). In Sunberg, the court found that a security interest in "existing or hereafter acquired . . . crops, growing crops, livestock, farm products, equipment, inventory, fixtures, contract rights, accounts and general intangibles" gave the creditor a security interest in PIK payments. The Bankruptcy Court interpreted Sunberg to give a secured creditor an interest in PIK payments only if a security agreement covered "general intangibles." While the court in Sunberg relied on a clause in the security agreement covering "general intangibles" in determining that a creditor held a valid security interest in PIK payments, the Sunberg decision does not preclude finding a valid security interest in PIK payments where the security agreement does not apply to "general intangibles."

Norwest asserts that its lien attached to the Debtors' crop when it was grown in 1982, and that the PIK payments were in effect proceeds of the 1982 crop. This theory does not account for an intervening event: when the Debtors placed the 1982 crop in storage, they received payment for it. Norwest may have had a lien on that payment. But the PIK payments were not received as proceeds of the 1982 crop; rather, they were received under an agreement that applied to the 1983 crop year.

Norwest also argues that it is entitled to the PIK payments since the security agreement covered "all farm products . . . all crops . . . and the products thereof." This Court agrees. Had the Debtors grown corn during the 1983 season, it would have been covered by the security agreement. The PIK payments were received as a substitute for the corn the Debtors would otherwise have planted. See In Re Lee, 35 B.R. 663 (Bankr.N.D.Ohio 1983). The PIK payments, though different in form, are analogous to cash payments received under federal deficiency and disaster programs; such cash payments have been determined to be covered by a security agreement covering "crop proceeds." See In Re Munger, 495 F.2d 511, 513 (9th Cir. 1974); In Re Nivens, 22 B.R. 287, 291-92 (Bankr.N.D.Tex. 1982). The language of the instant security agreement covering "all crops . . . and the products thereof" and the language of the instant financing statement covering "the proceeds and products of such crops" are sufficient to give Norwest a security interest in the PIK payments. See also In Re Judkins, 41 B.R. 369 (Bankr.M.D.Tenn. 1984) (PIK payments constitute "crop proceeds"); In Re Cupp, 38 B.R. 953, 955 (Bankr.N.D.Ohio 1984) (PIK payments covered by security agreement which applied to "all products of crops"); In Re Preisser, 33 B.R. 65 (Bankr.D.Colo. 1983) (PIK payments determined to be rents or profits of the land and so covered by deed of trust). But see In Re Kruse, 35 B.R. 958 (Bankr.D.Kan. 1983) (no security interest in PIK payments where security agreement did not apply to "general intangibles").

In light of the foregoing conclusion, it is unnecessary to address the other theories advanced by Norwest.

CONCLUSION

For the foregoing reasons, IT IS ORDERED:

That the August 8, 1984 order of the Bankruptcy Court is reversed.


Summaries of

Osteroos v. Norwest Bank Minot, N.A.

United States District Court, D. North Dakota, Northwestern Division
Dec 18, 1984
604 F. Supp. 848 (D.N.D. 1984)

In Osteroos this court held that a security interest covering "all crops and products thereof" and the language of the financing statement covering "the proceeds and products of such crops" was sufficient to give the Bank, in that case, a security interest in farm PIK payments.

Summary of this case from In re Kingsley

In Osteroos v. Norwest Bank Minot, N.A., 604 F. Supp. 848, 849 (D.N.D. 1984), the court specifically recognized that PIK payments could be covered by "proceeds" even though the security agreement did not cover "general intangibles."

Summary of this case from Rainier Bank v. Bachmann

In Osteroos, a security agreement covered "[a]ll farm products * * * including but not limited to all crops * * * and the products thereof * * *."

Summary of this case from Production Cr. A. v. Martin Cty. Nat. Bank

following this interpretation of Sunberg

Summary of this case from Production Cr. A. v. Martin Cty. Nat. Bank
Case details for

Osteroos v. Norwest Bank Minot, N.A.

Case Details

Full title:Odd A. OSTEROOS and Dorothy E. Osteroos, individually and d/b/a Hesnault…

Court:United States District Court, D. North Dakota, Northwestern Division

Date published: Dec 18, 1984

Citations

604 F. Supp. 848 (D.N.D. 1984)

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