Anderson v. Hercules, Inc. (In re Creel)

118 B.R. 372, 1988 Bankr. LEXIS 2659
CourtDistrict Court, E.D. South Carolina
DecidedAugust 26, 1988
DocketBankruptcy No. 87-00225; Adv. No. 87-0069
StatusPublished

This text of 118 B.R. 372 (Anderson v. Hercules, Inc. (In re Creel)) is published on Counsel Stack Legal Research, covering District Court, E.D. South Carolina primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Anderson v. Hercules, Inc. (In re Creel), 118 B.R. 372, 1988 Bankr. LEXIS 2659 (southcarolinaed 1988).

Opinion

ORDER

WILLIAM THURMOND BISHOP, Bankruptcy Judge.

This matter comes before the court on the complaint of the Trustee to avoid an alleged preferential transfer of two Caterpillar D-5 Combo tractors, a Hyster trailer, and two pallets (collectively “the collateral”), pursuant to 11 U.S.C. § 547(b).1 The Trustee seeks the turnover of the collateral, or, in the alternative, judgment in the amount of $75,448.04.

FINDINGS OF FACT

The debtor, Roosevelt Creel, worked for the defendant, Hercules Inc., from 1971 until 1985 in various capacities, including that of foreman of one or more stump harvesting crews. The practice of stump harvesting involves the collection of dead tree stumps to be sent by railroad to the Hercules processing plant in Brunswick, Georgia, where resin is extracted from the stumps. The resin removed from the stumps is used in a variety of products, including chewing gum, cake batter, food coloring, toothpaste, and cleaning products.

In 1985 Hercules reduced its stump harvesting operations and Mr. Creel was dismissed. At that time, Mr. Creel went into the stump harvesting business as a private contractor for Hercules. Hercules sold Mr. Creel the equipment for his stump removal operation, including the two Caterpillar D-5 tractors, the Hyster trailer, and the two pallets. On August 29,1985, Mr. Creel executed a promissory note for the collateral, a security agreement, and a financing statement for the two Caterpillar D-5 trac[374]*374tors and the pallets. Security in the Hy-ster trailer is covered by a Certificate of Title. The parties stipulated that Hercules did not have a perfected security interest in the Hyster trailer due to failure to comply with the Certificate of Title recording requirements of S.C.Code § 56-19-620 (1976).

The financing statement was recorded with the Florence County Clerk of Court, the county of Mr. Creel’s residence, on September 11, 1985. No financing statement was filed in any other county or with the South Carolina Secretary of State.

As a result of the need for extensive repairs to the tractors, Mr. Creel decided to cease his stump harvesting operations. On October 15 or 16, 1986, Mr. Creel notified Hercules that he was quitting as a contractor. At that time, the collateral was located in a heavily wooded area in Clarendon County, South Carolina. On October 20, 1986, agents from Hercules visited the site to inspect and photograph the collateral. On October 28, 1986, the tractors were repaired by mechanics from Hercules, and on October 29, 1988, the tractors were driven onto trailers and hauled to separate Hercules facilities in Georgia.

The parties have stipulated the following facts:

October 24, 1986 was the ninetieth day before the petition was filed; Hercules will recieve more on its claim if it is allowed as a secured rather than unsecured claim; Roosevelt Creel was insolvent for the 90 days immediately preceding the filing of the petition for relief.

At the hearing held July 21, 1988, the court ruled that Hercules did not have a perfected security interest in the collateral by virtue of possession (one of the methods utilized to perfect a lien). Furthermore, the court ruled that as a matter of law Hercules did not have a perfected security interest in the title to the Hyster trailer.

ISSUES

1. Is the collateral “equipment used in farming operations" pursuant to South Carolina Code § 36 — 9—401(l)(a)?

2. What is the value of the collateral?

CONCLUSION

If the collateral is “equipment used in farming operations”, then Hercules had a perfected security interest more than 90 days before the petition for relief was filed and Hercules may keep the tractors and pallets. If it is not equipment used in farming operations, then Hercules has an unperfected security interest, and the Trustee may avoid such an interest pursuant to 11 U.S.C. § 544(a).

South Carolina Code § 36-9-401 (1976) states:

(1) the proper place to file in order to perfect a security interest is as follows:
(a) when the collateral is equipment used in farming operations,.. .then in the office of the Register of Mesne Conveyances of the Clerk of Court in the county of the debtor’s residence ...
(b) ...
(c) in all other cases, in the office of the Secretary of State.

Therefore, a security interest in equipment used in a farm operation is perfected by filing with the clerk of court. When the equipment is not used in a farming operation, the financing statement must be filed with the Secretary of State. Since Hercules only filed a financing statement with the Florence County Clerk of Court, if stump harvesting is deemed not to be a farming operation, then Hercules is left with an unperfected security interest in the collateral and must return it to the Trustee or the trustee have judgment for its value. Consequently, this Court must determine if stump harvesting is a farming operation vel non.

The Uniform Commercial Code does not define “equipment used in farming operations,” nor does it define “farm” or “farming operations”. However, it does define “farm products”. Uniform Commercial Code § 9-109, as embodied in South Carolina Code § 36-9-109 (1976), states:

Goods are ...
(3) “farm products” if they are crops or livestock or supplies used or produced in farming operations or if they are [375]*375products of crops or livestock in their unmanufactured states (such as ginned cotton, wool-clip, maple syrup, milk and eggs), and if they are in the possession of a debtor engaged in raising, fattening, grazing, or other farming operations. If goods are farm products, they are neither equipment nor inventory.

Comment 4 to § 36-9-109 suggests that the phrase “farming operations” should be narrowly construed. In re Collins, 3 B.R. 144, 28 U.C.C. Rep. 1520 (Bankr.D.S.C. 1980), In re Blease, 24 U.C.C. Rep. 450 (Bankr.D.N.J.1978), In re Butcher, 43 B.R. 513, 39 U.C.C. Rep. 345 (Bankr.E.D.Tenn. 1984).

Although the decisions construing §§ 9-109 and 9-104 are not inconsistent there is no common thread of reasoning that sets out an acceptable strategy for determining when equipment is used in farming operations. The closest generalization that can be made is that the equipment must be used directly to perform tasks customarily done on farms.

In re Blease, supra at 454.

Stump harvesting is not a task customarily done on a farm. It is performed on large tracts of heavily-forested land.

The concept of “farming” 'and “farming operations” clearly contemplates involvement in the wide range of activities associated with the raising of crops or livestock and not merely the rendition of a service related to such crop or livestock production. More simply, the definitions and the commentary cited above stress the notion of raising crops or livestock as the essence of farming. It is this involvement in process of growing or developing crops and livestock that defines farming.

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Bluebook (online)
118 B.R. 372, 1988 Bankr. LEXIS 2659, Counsel Stack Legal Research, https://law.counselstack.com/opinion/anderson-v-hercules-inc-in-re-creel-southcarolinaed-1988.