Source: http://openjurist.org/966/f2d/236/bankr-l-rep-p-74683-in-the-matter-of-charles-b-drewry-and-julie-m-drewrys
Timestamp: 2013-05-23 14:12:11
Document Index: 693226346

Matched Legal Cases: ['§ 541', '§ 541', '§ 542', '§ 541', '§ 30', '§ 554', '§ 541', '§ 541', '§ 541']

966 F2d 236 Bankr L Rep P 74683 in the Matter of Charles B Drewry and Julie M Drewrys | OpenJurist
966 F. 2d 236 - Bankr L Rep P 74683 in the Matter of Charles B Drewry and Julie M Drewrys	Home966 f2d 236 bankr l rep p 74683 in the matter of charles b drewry and julie m drewrys
966 F2d 236 Bankr L Rep P 74683 in the Matter of Charles B Drewry and Julie M Drewrys 966 F.2d 236
Bankr. L. Rep. P 74,683In the Matter of Charles B. DREWRY and Julie M. Drewry,Debtors-Appellants.
No. 91-1372.
Argued Jan. 21, 1992.Decided June 24, 1992.
The answer to the question on appeal turns on whether the interest the Drewrys had in Trust No. 1788 is property of the estate under 11 U.S.C. § 541(a). If it is then the estate is entitled to the rents Maurice Busselberg collected from BFI for the crop years 1985, 1986 and 1987--or at least some of it. If not, Busselberg does not have to turn over the rents. The issue here on appeal concerns the district court's conclusion of law. Therefore the appropriate standard of review is de novo. Calder v. Camp Grove State Bank, 892 F.2d 629, 631 (7th Cir.1990).
Busselberg rejoins that when the Drewrys entered into the lease of their interest in Sunnybrook Farm with BFI they never attempted to contact the trustee of that interest, Whiting Bank. Thus the lease between the Drewrys and BFI was invalid. Busselberg says because the lease was invalid the Drewrys created a significant restriction on their ability to transfer their beneficial interest in Trust No. 1788, which was enforceable under applicable nonbankruptcy law. Consequently, even though the beneficial interest might have been considered property of the estate under 11 U.S.C. § 541(a), which the postpetition rents would follow pursuant to 11 U.S.C. § 542(a), the exception found in 11 U.S.C. § 541(c)(2), stating "[a] restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title," applies taking the interest out of the bankrupt estate.
The law concerning land trusts in Indiana does differ from Illinois law in some ways. Namely, in Illinois, the beneficiary of a land trust holds neither legal nor equitable title in the trust; the beneficiary holds a personal property interest. See Anthony Haswell and Barbara B. Levine, The Illinois Land Trust: A Fictional Best Seller, 33 DePaul L.Rev. 277, 282 (1984). Since the beneficiary's interest is personal property, judgments cannot attach. See Citicorp v. Bank of Lansing, 604 F.Supp. 585, 588 (N.D.Ind.1984). Under Indiana law, the beneficiary takes an equitable interest in the trust property. Ind.Code § 30-4-2-7. And under Indiana law, the beneficiary's equitable interest is subject to a judgment lien. Citicorp, 604 F.Supp. at 589. However, both Illinois and Indiana law classify the beneficiary's interest in the trust property as personal property, and both states recognize the beneficiary's power to control, manage and use the property in the trust. It is the feature of management and control that dictates the beneficiary's right to lease and receive rents. See Southeast Village Associates v. Health Management Associates, 92 Ill.App.3d 810, 48 Ill.Dec. 294, 296, 416 N.E.2d 325, 327 (1st Dist.1981); Klein v. Ickovitz, 121 Ill.App.2d 191, 257 N.E.2d 187 (1st Dist.1970). Therefore, the validity of the Drewrys' lease to BFI was not affected by the fact that the Drewrys failed to direct the trustee, Whiting Bank, to execute the lease instead of simply executing the lease themselves.
Moreover, that the Drewrys had assigned 100% of their beneficial interest in Sunnybrook Farm to Whiting Bank as security for a loan does not mean that they did not have sufficient legal interest to receive rents from a lease. Until the Drewrys defaulted on the loan for which the beneficial interest was assigned as collateral, the Drewrys were entitled to receive rents from a lease of that interest. The bankruptcy court noted that the assignment operated "merely as a secured financing mechanism rather than an unconditional and complete transfer" of interest. Whiting Bank did not receive the Drewrys entire beneficial interest in Sunnybrook Farm until April 5, 1989, when the property was abandoned to Whiting Bank pursuant to 11 U.S.C. § 554(b). Busselberg maintains that Judge Rodibaugh of the bankruptcy court correctly applied "nonbankruptcy law" under 11 U.S.C. § 541(c)(2) to determine Drewry had created a significant restriction on his right to transfer his beneficial interest in Sunnybrook Farm by assigning his beneficial interest to Whiting Bank as collateral for loans. (Judge Rodibaugh did not, however, state in his opinion that he was relying on 11 U.S.C. § 541(c)(2).) In support of this position Busselberg cites In re Newman, 903 F.2d 1150 (7th Cir.1990). In Newman the court stated in a footnote, "[w]hile there is disagreement about what else it might cover, it is clear that the phrase 'applicable nonbankruptcy law' used in this provision was intended to apply to state law concerning spendthrift trusts such as presented in this case." 903 F.2d at 1152 n. 2. In this case a land trust, not a spendthrift trust, is at issue. Busselberg urges this court to extend Newman to cover land trusts as well as spendthrift trusts. Because we do not believe Drewry restricted his right to transfer his beneficial interest by merely assigning that interest as collateral for loans, we do not have to decide whether 11 U.S.C. § 541(c)(2) applies to Indiana land trust law. Now that we have determined that the Drewrys were entitled to receive rents as long as they had a beneficial interest in Sunnybrook Farm, the next question is how long did the Drewrys possess a beneficial interest as against Maurice Busselberg which rents would follow?
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