IN RE McDANIEL

GEORGE BOSWELL, Bankruptcy Judge

The Court conducted a trial in these matters on March 12, 1999. FED. R. BANKR. P. 7001. Pursuant to 28 U.S.C. § 157(b)(2), these are core proceedings. After reviewing the testimony from the trial and the record as a whole, the Court makes the following findings of facts and conclusions of law. FED. R. BANKR. P. 7052.

At issue in this case is approximately $30,000.00 which is being held in escrow by Ag Services' attorney. This money represents the debtors' 1997 crop proceeds from the property in dispute. Ag Services asserts that they are entitled to the funds by virtue of a subordination agreement signed by Bobby Woody. After reviewing the numerous exhibits entered at the trial and the numerous documents filed in this adversary proceeding, the Court concludes that the simplest method of addressing the case at bar is by setting forth the contents of the various pertinent exhibits.

Exhibit 2: Subordination Agreement wherein Bobby Woody subordinated his security interest in McDaniel's 1997 crop proceeds to that of Ag Services.

Exhibit 4: Farm Lease executed on April 1, 1997, wherein the Bobby Woody, Dana Woody, Ray Woody, and Diane Woody, (hereinafter "The Woodys"), leased to debtor, Steve McDaniel ("McDaniel"), 1100 acres in Henry County, TN, and 160 acres in Carroll County, TN, (for a total of approximately 850 cultivatable acres) for a period of one year in exchange for a rental payment of $80,000. Thelease sets forth that said rental payment was to be paid as follows: "$55,000.00 upon the execution of this lease with the remaining $25,000.00 due, without interest, when Lessee harvest the first crops." The lease also provided that the "$25,000.00 balance shall be secured by a security agreement and financing statement on the crop."

Exhibit 5: Amendment to Farm Lease executed on April 1, 1997, by and between the Woodys and McDaniel wherein the lease was amended as follows:

1. Of the $55,000.00 of the total $80,000.00 rent due upon execution of the lease, Lessee has paid only $39,000.00, leaving a balance due of $16,000.00 plus the $25,000.00 due when the first crops are harvested.

2. In the event Lessee does not pay the $16,000.00, specified above within ten (10) days from the date of this amendment, the terms of the lease shall be amended to provide that Lessee shall be entitled to rent, for purposes of farming in 1997, only 400 acres of cultivatable land out of the 1100 acres in Henry County, Tennessee.

3. All other terms and conditions of the lease shall apply except that the additional $25,000.00 shall not be due from Lessee to Lessors.

Exhibit 12: Letter from Travis R. Simpson at Ag Services to Bobby Woody, stating:

Enclosed you will find is a check for the $16,000 owed to you for the rent due you from James Steven McDaniel. By your acceptance of and negotiation this check, you acknowledge that you are the owner of approximately 1260 acres in Carroll County and Henry County, Tennessee, with 850 acres more or less of cultivatable, and you have the right to lease this land and are leasing this land to James Steven McDaniel for crop year 1997. This constitutes all payments due to you until Ag Services has received full payment of the account as acknowledged by your signature on the enclosed subordination agreement.

Exhibit 13: Letter to Travis R. Simpson at Ag Services from Bobby Woody, stating:

This letter is in response to your letter to me of May 27, 1997, and in reference to our telephone conversation of June 3, 1997. I have received, but not negotiated, the $16,000.00 check, and before doing so want a clear understanding of how many acres Ag Services, Inc., is renting from me. I do own approximately 1260 acres in Carroll and Henry Counties, Tennessee, with approximately 850 acres in cultivation. Of this total acreage, approximately 370 acres (approximately 250 of which is in cultivation) are the subject of a purchase and sale contract, entered into within the last thirty (30) days or so between myself, as seller, and Mr. Thomas Payne, as purchaser, to close on or before July 11, 1997. Therefore this 250 cultivatable acres are not to be included in what you are renting from me.

The original agreement with Mr. McDaniel was for him to rent approximately 850 cultivable acres for $80,000.00. Mr. McDaniel defaulted on this agreement when he failed to pay the second installment of $16,000.00. For the total of $55,000.00 paid to me ($39,000.00 plus $16,000.00), 600 cultivatable acres are available.

Exhibit 16: Check made out to Bobby Woody in the amount of $16,000 from Ag Services. The endorsement on the back reads as follows: "Endorsement constitutes payment in full for 1997 cash rent on 200 acres rented to Ag Services of America, Inc."

These exhibits make it clear that as of April 12, 1997, McDaniel's lease of Woody's land was limited to 400 acres only. When Ag Services paid Woody the $16,000, they acquired an additional 200 acres only. They did not reinstate the terms of the original lease. The correspondence between Ag Services and Bobby Woody make it clear that Ag Services was not misled into believing that the $16,000 would have such an effect.

As a result of the reduction in the number of acres McDaniel leased from Woody, none of the acreage purchased by Payne from Woody by contract dated July 11, 1997, was included in the land on which Ag Services had a lien. The 250 tillable acres McDaniel then rented from Payne was separate and apart from the land Ag Services leased from Woody. It is clear from the exhibits and testimony that Payne was free to rent this land to anyone he chose. The fact he chose McDaniel made no difference.

Additionally, McDaniel executed a $25,000 note in favor of Payne for the rental of the separate 250 acres. This note gave rise to a landlord's lien in favor of Payne in any proceeds from crops grown on this land In no way did Payne subordinate this lien to Ag Services.

ORDER

It is therefore ORDERED that Thomas W. Payne is entitled to the funds in Ag Services' Attorney's escrow account up to the amount of his claim. Any remaining balance is to be paid to the debtors.

IT IS SO ORDERED.