1988 #07, Zeman Farms, Inc., 3-18-88

In re: ZEMAN FARMS. INC., Case No. 87-30132, Chapter 12

The above entitled matter was heard on a motion to determine value of a secured claim, pursuant to 11 USC Section 506(a) , filed by Travelers Insurance Company. On March 3, 1988, hearing on this matter was held in Pierre, South Dakota. At that time testimony was presented, three appraisals of the subject property were submitted into evidence, and the Court took the matter under advisement. There was no unanimity among the appraisals, therefore, it is necessary to make certain adjustments to determine the value of the subject real property. Doug Mortenson of N.C. Associates, Inc. , appraiser for Debtor, Henry Zeman, market data approach or sales approach, resulted in an opinion of Mr. Mortenson of $244,300.00 plus the contributing value of the irrigation for a total value of $270,000.00. Mr. Dan Chase, one of the appraisers for Travelers Insurance Company, market data or sales approach value was $495,045.00. Mr. John Widdoss, appraiser for Travelers Insurance Company, market data or sales approach value was $477,000.00.

This Court is satisfied after reviewing Mr. Mortensons testimony that his calculations of the contributing value of irrigation was not the result of any recognized method. The record reveals that the application of proper methods of determination would result in a $100.00 per acre increase in value. In reviewing the cost approach followed by each of the appraisers, there seems to be a consensus. (See PLC. Professional Associates, Inc. appraisal page 18, Chase appraisal page 20, and Widdoss appraisal page 65.) The Court has undertaken to reconcile the differences among the appraisals to arrive at the value of the property in question.

This Court finds there is approximately 960 acres of irrigated crop ground and allocates $270.00 per acre to 805 acres and $160.00 per acre to 155 acres. There is approximately 205 acres of dry land which the Court values at $170.00 per acre. (It is interesting to note that this is the one area that the appraisers seemed to be in agreement. There are 60 acres of pasture which this Court values at $75.00 per acre. There are also 60 acres of trees and building lots which this Court values at $65.00 per acre.

This Court recognized that it is necessary to adjust the above acreage allotments for waste land. This Court calculates there to be 55772 waste acres. The determined value then to be deducted for the same would be calculated by averaging the per acre value designated to each category of land set forth.

As to the value of the irrigation equipment, the Court felt that the value placed on it by Mr. t4ortenson of $25,700.00 would be considered a low value. Likewise, the value of $88,633.30 calculated by Mr. Widdoss would be considered a high value. This Court determines the value of the irrigation equipment to be $55,000.00.

There was conflicting testimony as to the contributing value of goose hunting available on the Zeman property. Henry Zeman, the debtor, testified that by virtue of the waterfront area not being designated as a refuge, the public has access to the river area in front of his property. The geese that attempt to congregate in this area are disturbed, therefore, hunting tends to be very unpredictable. This tact together with the fact that there was no reliable data introduced as to the income that could be derived from goose hunting on this property makes the value pure speculation. Accordingly, this Court has disregarded goose hunting as contributing value to the Zeman farm.

The following is a recapitulation of the items set out above:

Recapitulation:

805 acres Good Irrigated x $270.00/acre =$ 217,350.00

155 acres Marginal Irrigated x $160.00/acre =$ 24,800.00

205 acres Dry Land x $170.00/acre =$ 34,850.00

60 acres Pasture x $ 75.00/acre =4,500.00

60 acres Trees/Building Lots x $ 65.00/acre =3,900.00

$ 285,400.00

55.72 acres Waste Land x $148.00/acre = - 8.246.56

$277,153.44

Irrigation Equipment $ 55,000.00

Improvements $ 65,000.00

Total $ 397,153.44

The Court determines the value of the Zeman property to be $397,153.44. Counsel for Travelers Insurance Company may submit an order accordingly.

March 23, 1988

Supplement to Opinion

Entered March 18, 1988

This Court issued a letter opinion in this case on March 18, 1988, and entered the same on March 21, 1988 which decided the real property valuation issue. This opinion supplements the March 18 opinion, and constitutes rulings regarding personal property collateral on unstipulated matters.

Grain Bins and Accessories

It has been stipulated between all parties that the grain bins and accessories have a value of $30,000.00. According to the Debtor, Travelers is the secured party because "Travelers has a lien on all 'fixtures." (Debtors brief filed Feb. 22, 1988 at 13.) The Bank-has also claimed a security interest in this equipment as part of its comprehensive personal property security agreement and UCC filings. Because the equipment is either a fixture or equipment or other property within the confines of Banks security agreement and filings, one of these two creditors holds a security interest in these items. The Court has been informed subsequent to the March 3 hearing that Bank and Travelers have stipulated to evenly divide the $30,000.00 fixture/equipment issue is therefore rendered moot and this Court expresses no opinion in this regard.

Debtors Post-Petition Corn processing Expenses

The Order entered March 15, 1988 in this case allows the debtor-in-possession to deduct post-petition expenses actually incurred in processing the 1987 corn crop in proportion (68%/32%) to the values attributed to Bank ($127,472.12) and the unsecured/undersecured creditors ($59,986.88). The Debtor is required to meet its burden of proof with regard to the amount of necessary and reasonable expenses. Because the Debtor has produced no evidence of the amount of these expenses, no such deduction will be allowed at this tine. The representations in Debtors brief of February 22, 1988 regarding these expenses will not be taken as evidence.

Patronage Dividends

Henry Zeman, President of the Debtor, testified at the March 3 hearing that based upon his income tax returns he has accumulated $49,270.00 ½ patronage refunds due from three entities. The Court holds that Banks extensive security agreement and 0CC filings perfect a security interest in these funds. However, it is not willing to value the patronage refunds at their face amount. it appears the right to the refund is an asset that is far from liquid. For this reason the present value of the refunds at the time of confirmation has not been satisfactorily established.

Cash on Hand

Mr. Zeman testified that the Debtors cash on hand was farm income. Because Bank is perfected as to the proceeds of all sources of farm income, the Court finds that it is perfected as to the cash on hand. Mr. Zeman testified that cash on hand as of the date of filing was $6,621.65. Because the petition date is not the relevant date of valuation, and because cash, whether collateral or not, is - - the most liquid of assets, the Court is unwilling to hold at this point that the cash on hand at the March hearing was the sane as the date of petition.

Satellite Dish

Bank has conceded that it does not have a lien in the satellite dish because "there is no evidence as to its use as a farm asset." (Banks brief filed Mar. 11, 1988, at 6.)

Office Furniture

The office furniture is either "equipment" or "consumer goods" depending upon whether it is used primarily for personal or business purposes. CornDare SDCL 57A-9-109 sub (1) with sub (2). The Bank has admitted it holds no security interest in consumer goods, by conceding it is unsecured with regard to the satellite dish.

Mr. Zeman testified that the office equipment was used in his business of farming. The Court finds it is primarily used for business purposes and therefore is within the security agreement and filing of Bank. The Court values these goods at $500.00, the estimate in the Debtors schedule B-2.

Boat

The same issue exists regarding the boat as with the office furniture. Mr. Zeman testified that the boat was used at least four times a year to monitor and clean the intake units of the irrigation equipment. There was no evidence the boat was used for personal purposes. Accordingly, the Court finds that the boat is within the security agreement and filing of Bank. The Court accepts the $2,500.00 value of the 1953 Lund boat contained on Debtors schedule B-l, having heard no evidence to the contrary.

The Court anticipates the parties will again attempt to settle the value of the patronage refunds, amount of cash on hand, and amount of post-petition corn processing expenses. En the event they are unable to do so, a hearing shall be set up on these matters in time for incorporation of the Courts findings in the Debtors plan.

The attorney for the Bank is directed to prepare an Order, and Findings of Fact and Conclusions of Law with regard to the matters discussed in this supplemental opinion.

Counsel for Travelers Insurance Company is directed to submit Findings of Fact and Conclusions of Law with regard to the matters contained in the March 18, 1988 opinion, in addition to the Order that opinion requires him to supply.

March 23, 1988

After reviewing the latest epistle in the above captioned matter of March 23, 1988 it would appear after further reflection arid review, the Order for Cash Collateral signed by Judge Ecker on October 19, 1987, more specifically the second full paragraph on page 2, that the issue as to the cash on hand was resolved and that it would be handled in the manner set out in the order. Consequently, Mr. Goldammer may reflect that treatment in his proposed order.

I am enclosing copies of the Order Allowing Cash Collateral which I referred to. If there are any questions please feel free to contact me.

ORDER

The Court having scheduled an expedited hearing on Debtors request for Use of Cash Collateral on October 2, 1987, at 1:30 o'clock p.m., in the Federal Building, Pierre, South Dakota, and the debtor being personally present and represented by its attorney, John Harmelink, and die Tn-County Bank, Chamberlain, South Dakota, being represented by its attorney, Vance Goldammer, and the parties having stipulated and agreed for the use of cash collateral, ana for other good cause appearing, it is hereby

ORDERED that the debtor shall be allowed to use cash collateral pursuant to Exhibit #2 attached to its Application for Use of Cash collateral, tot the months of September, October and November, 1987; and

IT IS FURTHER ORDERED that this hearing shall be preliminary in nature, and that either of the parties may request a final hearing on ten (10) days written notice with the thirty (30) day requirement being waived by the parties; and

IT IS FURTHER ORDERED that the debtor shall be allowed to receive and use all proceeds from the ASCS/CCC, with any security interest claimed by Tri-County Bank being reserved for a future determination by the Court; and

IT IS FURTHER ORDERED that the proceeds used by the debtor which are either secured to the Tri-Couty Bank, or are later determined by the Court to be secured to said Bank, shall accrue interest at ten and one-half (10.5%) percent, and shall be paid back pursuant to debtors Plan, by agreement of the parties or by Court Order; and

IT IS FURTHER ORDERED that the debtor shall pay to the Tri-County Bank all proceeds now in its possession received from the sale of its 1986 grain; and

IT IS FURTHER ORDERED that in consideration of the debtor paying to the Tri-County Bank proceeds received from the sale of 1986 grain, the Bank will cooperate with the debtors in resolving all claims it has or may have against Henry or Elizabeth Zeman personally, with the intent that said personal claims will be resolved in the Zeman Farms, Inc., Chapter 12 bankruptcy proceeding; and

IT IS FURTHER ORDERED that the other terms, conditions, and offers of adequate protection as proposed by the debtor in its

Motion for Use of Cash Collateral shall be allowed.

Dated this 19th day of October, 1987.

BY THE COURT:

Peder K. Ecker

U.S. Bankruptcy Judge