Court Opinion

ID: 182017
Source: CourtListenerOpinion
Date Created: 2010-12-30 16:26:29+00
Date Added: 2024-06-11T13:00:03.707223
License: Public Domain

United States Bankruptcy Appellate Panel
                           FOR THE EIGHTH CIRCUIT

                                      No. 10-6019

In re:                                      *
                                            *
Robert Meill,                               *
                                            *
         Debtor.                            *
                                            *
Gary E. VanCura,                            *        Appeal from the
                                            *        United States
         Creditor - Appellant,              *        Bankruptcy Court for the
                                            *        Northern District of Iowa
               v.                           *
                                            *
Renee K. Hanrahan,                          *
                                            *
         Trustee - Appellee.                *

                               Submitted: December 3, 2010
                                Filed: December 30, 2010

Before KRESSEL, Chief Judge, SCHERMER and NAIL, Bankruptcy Judges

SCHERMER, Bankruptcy Judge

       Gary E. VanCura (the “Creditor”) appeals from an Order of the bankruptcy
court granting the motion of Renee K. Hanrahan, Chapter 7 trustee (the “Trustee”) for
the bankruptcy estate of Robert E. Meill (the “Debtor”), to sell real estate purchased
by the Debtor from the Creditor on contract free and clear of all liens.1 We have
jurisdiction over this appeal from the final order of the bankruptcy court. See 28
U.S.C. § 158(b). For the reasons set forth below, we affirm.

                                         ISSUE
       The issue on appeal is whether the $30,000 loan made by the Creditor to the
Debtor subsequent to the time when the Debtor and Creditor entered into an
installment real estate contract (the “Contract”) qualifies as an advancement under the
Contract that should be added to the principal amount of indebtedness secured by the
real estate. We also examine whether the bankruptcy court’s approval of the Trustee’s
sale free of liens pursuant to § 363(f) of Title 11 of the United States Code (the
“Bankruptcy Code”) was proper. We conclude: (1) the $30,000 loan was not an
advancement under the Contract, (2) the loan was not, therefore, secured by the real
estate, and (3) the bankruptcy court’s approval of the sale was proper.

                                BACKGROUND
      On May 28, 2009, the Debtor filed a voluntary petition for relief under the
Bankruptcy Code. The Debtor’s Chapter 11 case was converted to Chapter 7, and
the Trustee was appointed trustee of the estate.

      Pursuant to the Contract dated April 30, 2002, the Creditor sold a parcel of real
property commonly known as 3212 Wilson Avenue SW (the “Property”) to the
Debtor. The Debtor paid a portion of the purchase price at the time of the sale, with
the balance due over time. The Contract was recorded with the county recorder.
Paragraph 9 of the Contract provides the Creditor with the option to make
advancements for unpaid taxes, special assessments and insurance or to effectuate

       1
         The Honorable Paul J. Kilburg, United States Bankruptcy Judge for the Northern
District of Iowa.

                                              -2-
necessary repairs and to add such sums advanced or used to the principal amount
secured under the Contract.2

      The Debtor and the Creditor were close personal friends. In 2008, the Debtor
approached the Creditor asking for a loan. The Creditor initially loaned the Debtor
$30,000. Shortly thereafter, he loaned the Debtor another $100,000. Both loans were
evidenced by a promissory note dated June 6, 2008 in the principal amount of
$130,000. The Creditor testified that the parties drafted the promissory note together.
The promissory note states that it is secured by four vehicles. The promissory note
was not recorded with the county recorder.

       The Creditor testified that at the time he agreed to loan, or did loan, the $30,000
to the Debtor, he understood that the Debtor would use the funds to “help his office
people meet payroll.” Thereafter, the Debtor asked or advised the Creditor that he
either had already used funds from the $30,000 loan to pay property taxes or he
planned to do so. According to the Creditor, he did not object to the Debtor’s use of
the funds to pay property taxes because he “believe[d] my original private contract
that was recorded allowed me to do that.” The Creditor thought he recollected the
Debtor showing him a receipt for payment of the taxes, but the Creditor had no proof
that any part of the $30,000 that he loaned to the Debtor was actually used to pay
taxes. In addition, the Creditor admitted that he did not use any of the $30,000 to
make direct payment to the taxing authority or others for taxes, special assessments
or repairs.

       2
                 The Creditor and Debtor also entered into similar contracts for two additional
properties. The bankruptcy court’s order disposed of the Trustee’s request to sell all three
properties and the Creditor appealed the bankruptcy court’s order with respect to all three
properties. As part of an agreement regarding the Creditor’s request for a stay pending appeal,
the Creditor allowed the Trustee to sell the two additional properties. The order granting the stay
pending appeal required the Creditor to execute any documents necessary to dismiss his appeal
as it pertains to the two additional properties.

                                                -3-
       The Trustee filed a motion to sell the Property free and clear of the Creditor’s
lien. In her sale motion, the Trustee proposed to sell the Property for $225,000,
although its assessed value was $338,281. The Debtor’s estate held approximately
461 parcels of real estate. The Trustee testified that she marketed the properties in
various ways and received more than 200 calls and contacts with inquiries about the
various properties. She received no offers to purchase the Property that is the subject
of this decision for an amount greater than the $225,000 offer. The Trustee believes
that the sale is in the best interest of the bankruptcy estate. She explained that if the
sale of the Property is not approved, the benefits from the Property will accrue to the
Creditor, rather than to the estate.

       The Creditor asserted that the $130,000 amount should be added to the balance
owed on the Contract and similar contracts for two other properties. On appeal, the
Creditor conceded that the record does not support a finding that $100,000 of the loan
evidenced by the promissory note was advanced for taxes, special assessments and
insurance or to effectuate necessary repairs, but he maintains that a large portion of
the $30,000 loan constituted an advancement for payment of real estate taxes. If the
Creditor’s lien secures the additional $30,000 debt, the estate would gain no funds
after payment of the Creditors’ secured claim and a third party judgment lien. If the
$30,000 debt is not secured by the Property, the estate will retain net equity from the
sale.

       The bankruptcy court granted the Trustee’s motion to sell the Property,
explaining that the Creditor’s lien does not include the debt for the 2008 loan. The
bankruptcy court also found that the sale “is in good faith and for a fair and reasonable
price in the circumstances.”

                          STANDARD OF REVIEW
We review the bankruptcy court’s findings of fact for clear error and conclusions of
law de novo. Granite Reinsurance Co., Ltd. v. Acceptance Ins. Co. (In re Acceptance

                                           -4-
Ins. Cos. Inc.), 567 F.3d 369, 376 (8th Cir. 2009)(citation omitted); Four B. Corp. v.
Food Barn Stores, Inc. (In re Food Barn Stores, Inc.), 107 F.3d 558, 562 (8th Cir.
1997)(citation omitted). “We will reverse on matters committed to the bankruptcy
court’s discretion only if the court abused its discretion.” Food Barn, 107 F.3d at 562.

                                   DISCUSSION
       Section 363(b)(1) of the Bankruptcy Code allows the Trustee to sell property
of the Debtor’s bankruptcy estate “other than in the ordinary course of business.” 11
U.S.C. §363(b)(1). Section 363(f) allows the Trustee to make such sale free and clear
of an interest of another party when:

      (1) applicable nonbankruptcy law permits sale of such property free and
      clear of such interest;

      (2) such entity consents;

      (3) such interest is a lien and the price at which such property is to be
      sold is greater than the aggregate value of all liens on such property.

      (4) such interest is in bona fide dispute; or

      (5) such entity could be compelled, in a legal or equitable proceeding, to
      accept a money satisfaction of such interest.

11 U.S.C. § 363(f). Section 363(p)(2) provides that “an entity asserting an interest in
property has the burden of proof on the issue of the validity, priority, or extent of such
interest.” 11 U.S.C. § 363(p)(2). The Creditor, a holder of a vendor’s lien under Iowa
law, claims that he has a lien for a large portion of the $30,000 loan made to the
Debtor in 2008. See State Bank of Iowa Falls v. Brown, 119 N.W. 81, 83 (Iowa
1909)(vendor has a lien “for the purchase money upon property sold by him”); IOWA
CODE §557.18. The Trustee’s sale meets the requirements of § 363(f) because the

                                           -5-
$30,000 loan is not secured by the Property, rendering the sale price greater than the
value of the liens on the property.

Paragraph 9 of the Contract

       Paragraph 9 of the Contract provides the Creditor’s alleged basis for his claim
that the 2008 loan was a secured advancement for payment of taxes. It states that:

      ADVANCEMENT BY SELLER. If [Debtor] fails to pay such taxes,
      special assessments and insurance and effect necessary repairs, as above
      agreed, [Creditor] may, but need not, pay such taxes, special
      assessments, insurance and make necessary repairs, and all sums so
      advanced shall be due and payable on demand or such sums so advanced
      may, at the election of the [Creditor], be added to the principal amount
      due hereunder and so secured.

        To interpret the Contract, we must determine the parties’ intent at the time they
entered into it. Granite, 567 F.3d at 378-79 ( Iowa law)(citations omitted); The
Pillsbury Co., Inc. v. Wells Dairy, Inc., 752 N.W. 2d 430, 436 (Iowa 2008) (citation
omitted). If there is no ambiguity, intent is determined from the language of the
contract. Granite, 567 F.3d at 379 (citation omitted); Mid-America Real Estate Co.
v. Iowa Realty Co., Inc., 406 F.3d 969, 972 (8th Cir. 2005)(citation omitted); Hofmeyer
v. Iowa Dist. Court for Fayette County, 640 N.W.2d 225, 228 (Iowa 2001)(citation
omitted). “[A]n ambiguity occurs in a contract when a genuine uncertainty exists
concerning which of two reasonable interpretations is proper.” Granite, 567 F.3d at
379 (quoting Hartig Drug Co. v. Hartig, 602 N.W.2d 794, 797 (Iowa 1999)); R & J
Enters. v. General Cas. Co. of Wis., — F.3d —, No. 09-3887, 2010 WL 5111677, at
*1 (8th Cir. Dec. 16, 2010)(citation omitted). All pertinent rules of interpretation must
be considered before it can be determined whether an ambiguity exists. Hartig, 602
N.W.2d at 797 (citation omitted).

                                           -6-
      The bankruptcy court correctly determined that the $30,000 loan from the
Creditor to the Debtor did not comply with the contractual requirement for making a
secured advancement. Paragraph 9 explains that the Creditor may pay the taxes and
add the amount advanced to the principal amount of the secured debt under the
Contract. The Creditor admitted that he did not pay the taxes directly to the taxing
authority. Nowhere does the Contract state that a secured advancement is made when
Creditor gives the Debtor a loan that is then used to pay taxes.

        The words of Paragraph 9 are not ambiguous. The only meaning that can be
ascribed to them is that an amount will not be added to the principal amount due and
secured under the Contract unless it was advanced by the Creditor for one of the
purposes set forth therein. The Creditor suggested that testimony explaining his belief
that the funds from the 2008 loan would be added to the principal balance of the
Contract is determinative of the parties’ intent. The Creditor’s testimony is
insufficient to negate the clear terms of the Contract. It does not require us to make
a determination that when the parties entered into the Contract in 2002, the language
in Paragraph 9 was meant to allow payment of the taxes directly by the Debtor. If the
parties had wanted to add to the secured principal Contract balance when the Debtor
used funds loaned by the Creditor for one of the purposes set forth in Paragraph 9,
they could have included language to that effect in the Contract.

      Moreover, the Creditor’s testimony is inconsistent regarding the purpose and
use of the $30,000 loaned to the Debtor. The Creditor first said that he made or
agreed to make the loan to help with the Debtor’s payroll. Then, the Debtor asked or
advised the Creditor that he either had already used funds from the $30,000 loan to
pay property taxes or he planned to do so. The Creditor allowed the use of the funds
for property taxes because he believed that his “original private contract that was
recorded allowed [him] to do that.” He also believed that at some point the Debtor
had shown him a receipt for payment of the tax bill.

                                          -7-
       Ultimately, there is no proof that the Debtor used funds from the $30,000 loan
to pay the taxes. The bankruptcy court correctly observed that other than the
Creditor’s testimony, the record does not contain any evidence that the sums loaned
by the Creditor were used for payment of the taxes or for any other purpose included
in Paragraph 9 of the Contract. We note that there was no evidence of the exact
timing of the payment of the taxes, any restriction placed by the Creditor on the use
of the funds or any earmarking or tracing of the funds. The Creditor’s reliance on the
premise that he had “no reason to believe that [the Debtor] lied to [the Creditor]”
about using the funds to pay the taxes does not show that the funds loaned by the
Creditor were actually used to pay the taxes.

Approval of Sale

       The bankruptcy court approved the sale, stating that the sale is “in good faith
and for a fair and reasonable price in the circumstances.” The Creditor did not contest
the bankruptcy court’s determination that the sale was conducted in good faith, but he
disputes the bankruptcy court’s decision that the sale price was fair and reasonable,
arguing that the sale should not have been approved because the sale price was
“significantly below the fair market value.” We disagree.

       Bankruptcy courts have wide discretion with respect to sales of assets of a
bankruptcy estate; “[t]hey have ‘ample latitude to strike a satisfactory balance between
the relevant factors of fairness, finality, integrity, and maximization of assets.” Wintz
v. Am. Freightways, Inc. (In re Wintz), 219 F.3d 807, 812 (8th Cir. 2000)(quoting Food
Barn, 107 F.3d at 566 (internal quotation marks and citations omitted)). “A sale of
estate property outside the ordinary course of business is in the best interest of the
estate and may be approved if it is for a fair and reasonable price and in good faith.”
In re LeBlanc, Inc., 299 B.R. 546, 552 (Bankr. N.D. Iowa 2003)(citation omitted).

                                           -8-
       The Creditor suggests that by selling so many properties during the Debtor’s
bankruptcy case, the Trustee unfairly flooded the market, driving down the price for
the Property. But the market value of the Property was the price that the market
would bear at the time. The Trustee marketed the Property and did not receive an
offer to purchase it for a price greater than the $225,000 offer. The fact that the sale
price is less than the appraised value of the Property does not render it unreasonable.
Moreover, approval of the sale allows the benefits to accrue to the estate as a whole,
rather than to the Creditor alone. The bankruptcy court properly determined that the
sale price was fair and reasonable. As was previously mentioned, since the Creditor’s
2008 loan was not secured by the Property, the sale price was greater than the liens
on the Property and the bankruptcy court properly determined that the Trustee could
sell the Property free and clear of liens. Accordingly, we agree with the bankruptcy
court’s decision to approve the sale of the Property.

                                 CONCLUSION
      For the foregoing reasons, we AFFIRM the decision of the bankruptcy court.

                                          -9-