FINDINGS OF FACT, CONCLUSIONS OF LAW, AND FINAL JUDGMENT AWARDING PROCEEDS OF CROPS TO THE TRUSTEE IN BANKRUPTCY
DENNIS J. STEWART, Bankruptcy Judge.
The parties filed a "joint motion for order ascertaining entitlement to proceeds" on May 18, 1984. In the same joint motion, the parties stipulated the facts which they deem to be essential to resolution of the controversy which they seek to have resolved by the court. The stipulation is reproduced in the marginal note. These facts are summarized as follows for the purpose of the court's acting upon their material portions.
A copy of the stipulations of fact between the parties is attached hereto and is hereby incorporated by reference as the court's findings of fact contemplated by Rule 7052 of the Rules of Bankruptcy Procedure.
1. The Community Bank of Chillicothe attempted to perfect a security interest in all livestock and other farm products by filing a financing statement with the recorder of deeds of Caldwell County on October 2, 1980.
2. The Community Bank of Chillicothe also has a perfected security interest on certain land in Caldwell County and the debtors are in default on their payments against it.
3. On January 13, 1983, the debtors commenced the within chapter 11 proceedings, and, on March 13, 1983, elected to participate in the United States Department of Agriculture PIK program.
4. On June 22, 1983, Delmar Kampen loaned the debtors $142,000.00, taking a security interest in "all of the debtors' crops and products thereof grown or growing, or planted within six months prior to the date of execution hereof on certain real estate located in Caldwell County, Missouri," which is particularly described in the security agreement. A financing statement was filed in the office of the recorder of deeds.
5. The Community Bank of Chillicothe was granted relief from the automatic
stay on July 19, 1983, to foreclose on the real property.
6. The chapter 11 proceedings were converted to chapter 7 proceedings on July 29, 1983.
7. After September 16, 1983, the crops which are the subject matter of this controversy were harvested and $29,120.00 was received for the corn crop and $27,205.20 for the soybean crop. In December 1983 and January 1984 the trustee converted to cash certain PIK entitlements which he had received on or about November 16, 1983. The proceeds which he received were as follows:
$ 9,396.90 for corn $17,937.05 for soybeans $ 647.71 for soybeans
8. Additionally, "[t]he Trustee received and deposited in the aforesaid escrow account a check from the United States Department of Agriculture in the sum of $6,127.50, representing funds received as a result of the Debtors' participation in the United States Department of Agruculture corn and grain soybean diversion programs."
The Contentions of the Respective Parties
Each of the parties to this controversy has filed extensive briefs in which they have artfully and well employed their authorities and arguments. Their respective basic contentions are briefly summarized in the paragraphs which follow.
Delmar Kampen
Delmar Kampen contends that, "in order to induce [him] to agree to the [postbankruptcy] loan, the Debtors falsely represented that they had received the necessary authorization from the Court to incur secured debt."
"[A]pproximately three months after the loan was made, the Bank foreclosed on a deed of trust relating to a portion of the Debtors' property upon which the crops in question were growing. The Bank asserted that because the crops were growing and unsecured at the time of the foreclosure and subsequent sale that the crops passed with the land . . . [but] [t]he Bank failed to obtain any security interest in any of those items."
Community Bank of Chillicothe
Delmar Kampen's "security agreement contains no description of `proceeds' and therefore fails to comply with Section 400.9-203."
"Because of [the] treatment of crops as an accessory to the land, the Missouri courts have long held that those crops pass to the purchaser upon foreclosure." See Section 443.290 RSMo.
The Trustee in Bankruptcy
Delmar Kampen's security interest "is pursuant to a lien granted without leave of this Court after the filing of the Chapter 11 Petition and in violation of the automatic stay provisions of 11 U.S.C. § 362(a)(4). Further, the financing statement and security agreement are defective in that the financing statement speaks of PIK `assignments' rather than `entitlements,' the security agreement does not grant a security interest in contract rights, general intangibles or accounts, and that the first financing statement filed by Delmar Kampen does not contain a legal description of the property upon which the crops are growing or are to be grown."
"The Bank failed to include a description of the real estate in their filed financing statement, did not obtain a security agreement as required for a security interest, and failed to take possession of the property before claiming entitlement to rents and profits under the Deed of Trust."
Conclusions of Law
The following are the legal principles which the court must apply to the stipulations of fact made by the parties. Postpetition security interests granted by a debtor to another person must, as a prerequisite to their being honored, be approved by the court or by operation of law. See section 549(a) of the Bankruptcy Code which provides for the avoidance of any post-petition transfer which "is not authorized under this title or by the court." See also Matter of Isis Foods, Inc., 37 B.R. 334, 336, n. 3 (W.D.Mo. 1984), holding that such authority must be granted prior to the transfer, rather than afterward. These simple but binding imperatives require that the court not honor the security interest of Delmar Kampen.
In the footnote cited, the district court stated as follows:
"The court is not impressed by Dubuque's suggestion that the bankruptcy court in considering the propriety of the payments some twelve months after the fact thereby authorized them under section 549(a)(2)(B). It would appear that proposed transfers could be presented in advance to a bankruptcy court for its approval and would thereafter be insulated from attach under section 549; however, that procedure was simply not followed here."
See Matter of Isis Foods, Inc., supra, note 3.
In order to perfect a security interest in growing crops, a creditor must, in a financing statement, describe the crops with such particularity as would permit discovery of their location by reasonable inquiry. Matter of Wiskur, 31 B.R. 39 (Bkrtcy.W.D.Mo. 1983); Matter of Johnson, 21 B.R. 484 (Bkrtcy.W.D.Mo. 1982). But there is no description of any crops in the security agreement or financing statement of the Community Bank of Chillicothe. Under the circumstances of this case, the Missouri provision that one having a deed of trust in real property is ordinarily entitled to growing and unsevered crops at the time of the foreclosure sale has no application when the trustee's lien intervenes before any foreclosure sale is held.
The trustee's hypothetical lien attached to the growing crops at the time of the filing of these bankruptcy proceedings. The situation is therefore tantamount to that in which the crops were actually severed prior to the foreclosure hearing.
"It was held by this court years ago that a conveyance of land carried the crop of wheat growing upon it, owned by the vendor. Growing wheat, it was held, is a part of the freehold, and passes along with the land on which it is sown . . . So, too, the purchaser of mortgaged premises at a foreclosure sale is entitled to the crops which were sown by the mortgagor and were growing upon the land at the date of the sale."
Hayden v. Burkemper,
101 Mo. 644,
14 S.W. 767 (1890).
"The defendants could not free the growing crops from the lien of the deed of trust by the giving of chattel mortgages thereon, nor by the same means free them from the right of the plaintiff upon land to which title had already passed to the plaintiff.
The Farmers Bank of Hickory v. Bradley, 315 Mo. 811,
288 S.W. 774. There was no severance of the growing crops by defendants. This was done by the receiver appointed by the court subsequent to the sale of the land."
Canton Trust Co. v. Durrett, 320 Mo. 1208,
9 S.W.2d 925, 929 (1928).
"We have uniformly held that neither the owner of the land nor his grantee could free the growing crops of the lien of the deed of trust,
except by an actual severance from the soil before possession taken or foreclosure had under the deed of trust." Farmers Bank of Hickory v. Bradley, 315 Mo. 811,
288 S.W. 774, 775 (1926) (Emphasis added.).
It is therefore, for the foregoing reasons,
ORDERED, ADJUDGED AND DECREED that the abovementioned proceeds of crops are property of the bankruptcy estate and must therefore be turned over to the trustee in bankruptcy.