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https://www.courtlistener.com/api/rest/v3/opinions/8488865/ | MEMORANDUM DECISION
PEDER K. ECKER, Bankruptcy Judge.
Bankrupt, Otto Huber & Sons, Inc., Par-malee, South Dakota, filed a Chapter 4 Petition and Schedules on August 12, 1977. Farmers Elevator Company of Presho, Presho, South Dakota, Claimant, filed a proof of claim as a secured creditor on September 2, 1977.
*364After liquidation and during estate administration, the Trustee objected to the secured creditor status claimed by Claimant.
At a hearing held before this Bankruptcy Court, Trustee and Claimant stipulated to the following facts: On November 24, 1976, Claimant obtained a default judgment against Bankrupt in the Circuit Court of Lyman County, South Dakota, in the amount of $41,195.47. Claimant recorded the judgment the same day with the Clerk of Courts of Lyman County, South Dakota. Subsequently, transcripts of the judgment were forwarded to and docketed by the Clerk of Courts of Jackson County for Wa-shabaugh County, South Dakota, and by the Clerk of Courts of Mellette County, South Dakota. Bankrupt owned real property in all of the aforementioned counties. Claimant did not levy or execute on the judgments in any of the aforementioned counties. Bankrupt filed his bankruptcy petition more than four (4) months after the entering and docketing of the judgments in each of the three counties.
The issue presented to this Bankruptcy Court is whether a judgment lien holder is a secured creditor under the Bankruptcy Act when the creditor, more than four (4) months prior to the filing of the bankruptcy, obtained a default judgment and in accordance with SDCL 15-16-7 had the judgment entered and docketed in counties where Bankrupt had real property, but failed to levy or execute upon the judgment.
State law determines when, how, and on what a judgment becomes a lien. 4 Collier on Bankruptcy, 14th Edition, paragraph 67.08 at page 119. If, under South Dakota state law, levy or execution is necessary for a judgment to become a lien on Bankrupt’s property, then Claimant’s judgment lien would be null and void under the avoiding provisions of Section 67 and Section 70 of the Bankruptcy Act. Claimant would be a general unsecured creditor.
SDCL 15-16-7 provides that:
“When a judgment has- been docketed with a clerk of a circuit court, it shall be a lien on all the real property, except the homestead, in the county where the same is so docketed, of every person against whom any such judgment shall be rendered, and which he may have at the time of the docketing thereof in the county in which such real property is situated, or which he shall acquire at any time thereafter, for ten years from the time of docketing the same in the county where it was rendered, and no judgment shall become a lien on real property as herein provided unless it be docketed in the county where the land is situated.”
That SDCL 15-16-7 creates a lien upon the real property in the county where the judgment is docketed has been recognized by the South Dakota Supreme Court in First American Title Company v. Howe, 281 N.W.2d 605 (1979) and McMahon v. Brown, 66 S.D. 134, 279 N.W. 538 (1938). Nor is SDCL 15-16-7 unique in this respect. Florida, Indiana, Minnesota, Iowa, Illinois, Montana, Nevada, North Carolina, North Dakota, Ohio, Utah, Virginia, and Wisconsin are among the states with similar statutes. 4 Collier on Bankruptcy, 15th Edition, paragraph 547.12 at page 547-44, footnotes 17 and 18.
Trustee raised the argument in his brief submitted to this Court that South Dakota did not intend for a judgment lien on real estate, obtained under SDCL 15-16-7, to survive bankruptcy when the creditor failed to levy or execute the judgment. SDCL 15-16-26 provides in effect that a valid lien on specific property of a judgment debtor is not affected by the discharge of judgment against the bankrupt as distinguished from the general judgment lien on real estate prior to execution. No South Dakota statutes or case law exist that interpret the meaning of SDCL 15-16-26. The statute itself makes no express reference to a lien obtained under SDCL 15-16-7.
For the following reasons this Bankruptcy Court holds that SDCL 15-16-26 does not affect a lien obtained under 15-16-7 on the real property of the debtor.
*365No South Dakota statutes exist requiring the judgment creditor to levy and execute in order to perfect the lien obtained under SDCL 15-16-7. As noted in 51 Am.Jur.2d, Liens, paragraph 7, “in the absence of a statute so providing, it is not essential to the perfection of a lien that execution be levied”.
Under South Dakota law levy and execution do not affect the ranking or priority of a judgment creditor. In Murphy v. Connolly, 81 S.D. 644, 140 N.W.2d 394 (1966), the South Dakota Supreme Court held that judgment lien holders cannot establish greater priority by the act of levy or execution. The Court, at page 398, noted that:
“The North Dakota court, in the case of Zink v. James River Nat. Bank, supra (58 N.D. 1, 224 N.W. 901), in a very comprehensive and well-reasoned exposition of the law on the subject under consideration, and after reviewing the decisions of many jurisdictions, states what appears to be the general rule, that judgments become liens against after-acquired property at the time of the acquisition of such property by the judgment debtor, and hence become liens of equal rank and such equality is not destroyed by the act of one of the judgment creditors in causing execution to be issued upon his judgment and sale held thereunder, and that such liens remain in full force and effect, of equal rank, . . .
Under Section 70(c) of the Bankruptcy Act the Trustee, as of the date of bankruptcy, has the rights and powers of a hypothetical judgment lien creditor who has obtained an execution returned unsatisfied. If Trustee’s hypothetical judgment lien has priority over Claimant’s judgment lien, then Claimant is a general unsecured creditor.
Under South Dakota law, priority is determined by time of perfection. However, a judgment creditor who obtains a valid lien under SDCL 15-16-7 is not required to levy or execute on the judgment in order to improve his priority. Murphy held that a creditor’s position in the priority line is not improved by levy and execution. Since Claimant obtained a valid judgment lien under SDCL 15-16-7 more than four (4) months prior to the filing of the bankruptcy, Claimant is entitled to priority over Trustee’s hypothetical judgment lien. Further, a judgment lien obtained under SDCL 15-16-7 is not affected by SDCL 15-16-26.
A creditor who obtains a valid lien under SDCL 15-16-7 is entitled to be treated as a secured creditor where security does exist. Section 1(28) defines a secured creditor as including “a creditor who has security for his debt[s] upon the property of the bankrupt of a nature to be assignable under this Act”. The bankrupt’s nonhomestead and property is the security for a creditor having a valid lien obtained under SDCL 15-16-7. Here, such property does exist and Claimant is entitled to file as a secured creditor.
For the aforementioned reasons, the Bankruptcy Court orders Trustee’s Objection to Claim dismissed and hereby allows Claimant’s Proof of Claim as a secured creditor. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488866/ | ORDER WITH RESPECT TO SIX ORIZZIO KNITTING MACHINES (MILAN TEXTILE MACHINES)
THOMAS C. BRITTON, Bankruptcy Judge.
The trustee filed a complaint to determine the validity, priority and extent of various liens on the debtor’s property. (C.P. No. 1) The matter is at issue and was tried before me on March 6, 1980. By a separate order, dated March 10, 1980 (C.P. No. 66), all issues were resolved except those pertaining to the claimed lien of Milan Textile Machines, a division of Baiting Industries, Inc. (“Milan”) upon six Orizzio knitting machines.
Milan’s counterclaim asserts that it sold and delivered the knitting machines to a third party, Fabric Industries Corporation (“Fabric”) for $7,800 and retained a valid security interest securing the unpaid balance of $148,200. It denies that the debtor had and that the trustee has any right, title or interest in the property. (C.P. No. 49)
The trustee responds that Fabric is the alter ego of the debtor-corporation and, alternatively, she claims a landlord’s lien against the property under § 83.08, Florida Statutes. (C.P. No. 56)
The facts are relatively undisputed. An involuntary petition under chapter 11 was filed against this debtor on November 14, 1979. Under 11 U.S.C. § 1108, the debtor continued to operate its business, making material from thread, at 16300 N.W. 13th Avenue, Miami. The premises had been leased since March 29, 1978. During November (it is not clear whether before or after the petition) a second corporation, Fabric Industries Corporation, began production at the same location. Fabric engaged in the same line of business as the debtor and utilized some of the same employees. It is owned and controlled by the same principal.
On December 7, 1979 Milan entered into an installment contract to sell six knitting machines to Fabric. The machines were delivered to the premises identified above. The contract was negotiated at the premises with the principal by Milan’s agent who had no previous contact with the debtor. On December 17,1979, Milan entered into a security agreement with Fabric for the unpaid balance of the purchase price, but did not perfect its lien until January 23, 1980. An order for relief was entered December 18,1979. A trustee was appointed on January 14, 1980.
The trustee’s first contention, that Fabric was the debtor’s alter ego, and therefore the six knitting machines are the debtor’s property.
In Florida, the following rule governs the lifting of the corporate veil:
*454“Florida applies a rule that the separate identities of two or more corporations will be disregarded on a showing that one corporation is a ‘mere instrumentality’ of the other . . . and that the corporation is a device or sham to mislead creditors or exists for fraudulent purposes.” Bendix Home Systems, Inc. v. Hurston Enterprises, 5 Cir. 1978, 566 F.2d 1039, 1041.
Although one might well suspect the existence of both possibilities here, the trustee has established neither.
Furthermore, the corporate veil will not be pierced at the expense of an innocent third party:
“Here, innocent third parties dealt with each individual corporation in reliance upon . . . the distinctive corporate identity . . . Here, therefore, to disregard these distinctive corporate identities would work the very injustice the principle is intended to avoid.” Fidelity and Deposit Company of Maryland v. Usaform Hail Pool, Inc., 5 Cir. 1975, 523 F.2d 744, 758.
There is no basis to disregard the corporate identity of Fabric Industries in this matter.
Turning to the trustee’s assertion of the landlord’s statutory lien, § 83.08 Florida Statutes, there is no provision of the Code which vests in the Trustee the lien rights of the debtor’s landlord. Cf. 11 U.S.C. §§ 544, 545. The Florida lien for landlords is applicable to a sub-lease. Section 83.08(2). The trustee asks me to impose that lien for the period after bankruptcy. However, it is the trustee’s burden to prove the relationship of landlord and tenant. It cannot be presumed. Waldo v. United States Ramie Corp., Fla.1954, 74 So.2d 106. There is no evidence of any such relationship and, therefore, no applicability of the landlord’s lien in this instance. The trustee has no right, title nor interest in the six Orizzio knitting machines in question. Costs, if any, will be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488867/ | OPINION
WILLIAM LIPKIN, Bankruptcy Judge.
This matter arises out of a Complaint filed by Fuqua Industries, Inc. (Fuqua) to establish a lien on the assets of the Debtor, Mission Marine Associates, Inc. (Mission). Mission recognizes that Fuqua’s lien, if any, is subordinate to the lien executed in favor of A. J. Armstrong, Inc. (Armstrong).
*545Fuqua’s complaint consists of five counts. The First and Second Counts, dealing with advances of money secured by real estate mortgages and financing statements on personal property, are the subject matter of this opinion. The remaining counts are not being pressed for determination.1
Irvine Fasteners, Inc. (Irvine), a creditor of the debtor, disputes the validity of a lien in favor of Fuqua.
Briefly the facts are as follows:
On September 17, 1976 Mission became obligated to Fuqua, as evidenced by two notes in the sums of $1,375,000. and $500,-000. respectively. The notes were subordinated to the debtor’s obligation to Armstrong. The notes further provided that they were secured by a perfected lien on all the assets of the debtor. An additional promissory note was executed in the sum of $500,000. on October 29, 1976, containing the same provisions as the previous notes, as to security terms, etc. I shall skip over the exhibits offered which relate to a settlement and note dated March 31, 1977 between Fuqua and Mission and others, which resolved a dispute as to the value of the assets and amount of liabilities.2 I also shall skip over the note dated June 23, 1977 in the sum of $800,000., which recites the same provisions of the other notes.
The basis of contention finally comes down to an interpretation of instruments offered in evidence, dated March 15, 1978, and a determination of the effect of same. They consist of a Pledge Agreement and two notes, in the respective sums of $3,175,-000. and $900,000., payable by Mission to Fuqua.
The Pledge Agreement was entered into by and between Fuqua, David Trumbull, Maurice Cunniffe, Philip R. Gustlin and Buster Hammond, designated as “Shareholders”, and Mission. The Pledge Agreement provided for the Shareholders to escrow all the stock owned by them to Fuqua.
It is clear from the testimony that Mission was having financial difficulty at the time of the execution of the Pledge Agreement and Notes. It is also clear from the terms of the Pledge Agreement and the Notes executed by the parties that the escrow of stock referred to in the Pledge Agreement was not a novation and substitution of such collateral security in place of the mortgages and security agreement theretofore executed in favor of Fuqua. The personal property in California was validly secured by the filing of a Financing Statement with the Secretary of State in Sacramento. The two real estate mortgages on real estate of the debtor in New Jersey in the sum of $1,000,000. and $146,-000., plus an assignment of a mortgage on real estate mortgaged to Aetna Insurance Company in the sum of $82,000, the principal of which had been paid to Aetna by Fuqua, were proven to be properly recorded.
I find that the Pledge Agreement referred to above did not substitute the stock escrow as security for the indebtedness as contended by Irvine. It is clear from that instrument that it was only additional security for the debt that already existed. Fuqua did not become the owner of the assets of Mission by reason of the stock pledge. The operation of the business remained with Mission. The fact that Mission had to report on its financial affairs to Fuqua did not create a merger of the debt due it with ownership. Fuqua did not participate in the day by day operation or assume such dominion and control as to constitute Mission a subsidiary of Fuqua.
The other ground upon which Irvine seeks to set aside the liens of Fuqua must also be denied. Irvine seeks to have the *546lien declared invalid upon the ground that a new security agreement was not executed in 1978 when the Pledge Agreement and two notes were executed. The financing statement filed with the Secretary of State of California on November 24,1976, together with the Security Agreement executed at that time in 1976, created a valid security interest in Fuqua in the personal property listed therein such as equipment, machinery, molds, inventory, etc. Furthermore, the notes executed at the time of the transaction referred many times to the obligation as a secured one.3 The purpose of filing a Financing Statement is to give notice to other creditors of the existence of a possible lien. That purpose is served when supported by a security agreement.
It is not necessary that the Security Agreement be encompassed in one instrument. In this matter the Pledge Agreement has sufficient references therein to identify the existence of a Security Agreement and Fuqua’s status as a secured creditor. The preamble and the witnessing paragraph designate Fuqua as a secured creditor. If a default occurred Fuqua, at its option, could dispose of its collateral in accordance with the rights of a secured creditor under the California Uniform Commercial Code — Secured Transactions. The Pledge Agreement further provided in paragraph 12: “The rights of the Secured Party provided for hereunder shall be cumulative and non-exclusive, any exercise of one shall not preclude the exercise of any other right afforded by law.”
There was a properly executed security agreement effected in 1976 with a recorded Financing Statement filed in California in that year which are still effective as of this date on assets situated in the State of California. That Security Agreement has not been voided and the instruments executed in 1978, consisting of the Pledge Agreement and notes, are sufficient to constitute Fu-qua as a secured creditor. The notes and the Pledge Agreement executed on March 15, 1978 have sufficient references therein to satisfy the requirements of the Uniform Commercial Code.4
The foregoing conclusions of law, based upon the facts in this case, are mandated by the decision of the Third Circuit Court of Appeals, filed February 8,1980, In the Matter of Bollinger Corporation, Bankrupt, 614 F.2d 924. The Court in Bollinger rendered an interpretation of the law of the Commonwealth of Pennsylvania dealing with the Uniform Commercial Code. Since the *547State of New Jersey has adopted the same uniform law, I am of the opinion that the principles declared in Bollinger are applicable to similar situations in New Jersey. Therein the Third Circuit held,
When the parties have neglected to sign a separate security agreement, it would appear that the better and more practical view is to look at the transaction as a whole in order to determine if there is a writing, or writings, signed by the debtor describing the collateral which demonstrates an intent to create a security interest in the collateral. Id. at 928.
In that case the relevant writings were:
(1) the promissory note; (2) the financing statement; (3) a group of letters constituting the course of dealing between the parties. Id. at 928.5
In the Bollinger case the court held as follows:
. there is sufficient evidence that the parties intended a security agreement to be created separate from the assigned ICC agreement with Bollinger. All the evidence points towards the intended creation of such an agreement and since the financing statement contains a detailed list of the collateral, signed by Bollinger, we hold that a valid Article Nine security agreement existed .
The minimal formal requirements of section 9-203(l)(b) were met by the financing statement and the promissory note, and the course of dealing between the parties indicated the intent to create a security interest. Id. at 929.
The facts in the present case are even more persuasive of the existence of a valid security interest. The original security agreement of 1976 was never voided; and was later supplemented by the Pledge Agreement of 1978; and all the notes reflected a security interest; and the filed Financing Statement contained a detailed list of the collateral.
Finally, I note that paragraph 10, page 7, of the Pledge Agreement recites that the Agreement was intended to be formed in the State of California, and shall be deemed to be a California contract; “ . . . and shall be construed and enforced in accordance with the laws of such State; . . ”. The assets upon which a lien is sought to be impressed are all in California. Was a lien validly perfected in California? As pointed out in the Bollinger case, California is more liberal in recognizing the validity of liens than the Third Circuit.6 The case of In Re Amex-Protein Development Corporation, 504 F.2d 1056 (9 Cir. 1974), expounds the applicable law of that Circuit.
Under the guide lines of that decision, since the assets are in California, the validity of Fuqua’s security agreement is clearly established. As expressed by the Third Circuit.
It [meaning the Ninth Circuit] concluded that as long as the financing statement contains a description of the collateral signed by the debtor, the financing statement may serve as the security agreement and the formal requirements of section 9-203(1)(b) are met. In re Bollinger, 614 F.2d at 927.
In the Amex-Protein ease the debtor had signed notes, and the court from over all reading of the instruments ruled in favor of the creditor as one of secured status.
Therefore based both upon (1) the effect of the law in the Third Circuit whereby the creditor, Fuqua, had proven a security agreement in 1976 which was never can-celled, and a Pledge Agreement in 1978 which recognizes the secured status of Fu-qua, and the detailed notes evidencing the indebtedness, which notes also refer to the secured status of Fuqua, and the filed Financing Statement which contained a detailed listing of the collateral and (2) the effect of the law of the Ninth Circuit, where the collateral is located, which, as set forth, does not require the same degree of supporting instruments to spell out a valid *548security interest, I conclude from the facts and law applicable thereto that Fuqua has a valid security interest in the assets in California as itemized in the Financing Statement filed in that State on November 24, 1976.
I find that Fuqua has a mortgage on the real estate in New Jersey to the extent due on the mortgages filed in the State of New Jersey, but has no security interest in the chattels located in the State of New Jersey due to its failure to perfect its lien thereon. The amount to be realized on the real estate mortgages shall be applied on account of the entire indebtedness due Fuqua.
Fuqua has heretofore submitted a form of Order in this matter which includes a blanket provision that it, “has a valid and subsisting second lien upon machinery, equipment, buildings and fixtures, affixed to real estate of the debtor located in the State of New Jersey as described in the mortgages set forth hereinabove”. That provision is overbroad and, in effect, seeks to cure Fuqua’s failure to file a Financing Statement with the Secretary of State of New Jersey upon chattels located in New Jersey.
It has been admitted by Fuqua that it has no lien on chattels in the State of New Jersey. Whether any attachments to real estate become appurtenant thereto and part of the realty depends upon the intention of the parties and the “institutional theory”; a law well established in New Jersey. Therefore, for the purpose of resolving the instant issue before this court, the mortgages will constitute a lien only on the tangible real estate in New Jersey, and the other question is to abide further hearing, if necessary, upon filing proper pleadings for that purpose.
For the foregoing findings of fact and conclusions of law, an Order may be entered in accordance therewith.
. The Third Count deals with an obligation arising out of a warranty involving Miller Yacht Sales, a subsidiary of Fuqua. Count Four deals with the doctrine of marshalling of assets and Count Five deals with assertions of a maritime lien based upon the District Court opinion expressed in the “Penske” case.
. The Settlement Agreement, paragraph 6, refers to the Security Agreement attached to the Agreement as Exhibit C as does the note, paragraph (e), page 4, and (e)2, page 7.
. See Page 3(e) “This Note is secured by a perfected lien on all of the assets of the Obli-gor, which lien is second only to a similar lien securing the Senior Indebtedness (hereinafter referred to as the “Security Assets”).” “(f) . Loan Agreement . . Page 4, “(g) . . Security Assets . ” Page 6(e) recites execution of Agreement of Sale, Security Agreement and Financing Statement.
. page 2, “The Obligor covenants and agrees . (a) follows:
“(a) The principal of and interest on this Note are and shall only be subordinated in right of payment, to the extent set forth in paragraphs (b) through (d) inclusive, to all obligations for the repayment of indebtedness to be incurred by the Obligor pursuant to the terms of the Loan Agreement between Obligor and A. J. Armstrong Co., Inc., dated October 29, 1976, . . ” It is clear that Armstrong is a secured creditor and Fuqua was assuming a secondary position to it.
The next paragraph recognizes the right to payment first to the Senior Indebtedness.
Paragraph (e), page 3 of the Note, provides: “This Note is secured by a perfected lien on all of the assets of the Obligor, which lien is second only to a similar lien securing the Senior Indebtedness (hereinafter referred to as the ‘Security Assets’)”.
Paragraph (f) refers to the “ . . aforesaid Loan Agreement, without regard to any amendments thereof, shall be deemed to be also for the benefit of the holder of this Note and are hereby incorporated in this Note and may be exercised by the holder of this Note as if specifically set forth herein, and shall be construed as if the noteholder referred to in such covenants were the holder of this Note.”
See also paragraph (e), page 6, which provides:
“An event of default shall have occurred under any of the following agreements among the Obligor and the Obligee:
1. Agreement of Sale.
2. Security Agreement.
3. Financing Statement.
4. Pledge Agreement and Exhibit A.”
. It was stated therein that a note standing alone cannot serve as a security agreement. Id. at 928.
. The Third Circuit, in the Bollinger case, declined to follow the Ninth Circuit’s liberal rule. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488868/ | OPINION
WILLIAM LIPKIN, Bankruptcy Judge.
This matter arises out of a Complaint filed by Fessenden Hall, Inc. (Fessenden), whereby it sought to enjoin and restrain Mission Marine Associates, Inc., (Debtor), from directly or indirectly transferring ownership or possession of goods sold and delivered by it to the Debtor on May 17, 1979 and May 22, 1979, and directing the Debtor to deliver possession and transfer ownership of these goods to Fessenden.
The Debtor has filed an Answer to the Complaint denying that Fessenden is entitled to the relief sought.
Briefly the facts are as follows:
On May 23, 1979, the Debtor filed its Petition for an Arrangement under the provisions of Chapter XI of the Bankruptcy Act and an Order was entered on the same day permitting the Debtor to operate as a Debtor in Possession. No Receiver has been appointed by this Court.
The Debtor is engaged in the business of fabrication and manufacture of various types of boats and sailing vessels.
On May 17, 1979 and May 22, 1979, Fes-senden delivered to the Pacemaker Division of the Debtor goods consisting of cabinet glue, plywood, corian sheet stock and bowls and delta faucets, more particularly described in the invoices attached to the Complaint.
On May 25, 1979 Fessenden, by letter addressed to the Pacemaker Division of the Debtor, made a demand, “. . . pursuant to section 2-702 of the New Jersey Uniform Commercial Code to permit Fes-senden Hall Incorporated to come in and reclaim the goods which we delivered to said Pacemaker Division on May 17, 1979 .and May 22, 1979 all as described in the invoices attached hereto as Exhibit A and Exhibit B.”
On June 15, 1979 I signed an Order, consented to by both parties, based upon an agreement of the parties, reached in Court on June 5,1979, whereby it was determined that the value of the goods sought to be reclaimed was $7,184.73 and, “. . .if this Court rules in favor of Fessenden Hall, Inc., on the verified Complaint in Reclamation filed on June 1, 1979, its claim in the amount of $7,184.73 will be treated and allowed in this proceeding as an administrative expense.”
Within a short time thereafter, another creditor who had supplied engines to the Debtor sought to have its claim allowed as a Maritime Lien. Fessenden, together with other suppliers, has likewise sought to have its claim allowed as a maritime lien on the vessels built by the Debtor. Therefore, the resolution and determination of Fessenden’s claim under the subject matter Complaint was reserved pending final decision on the issue of the existence of maritime liens. However, counsel for Fessenden has expressed a desire for a determination of its Complaint; pursuant to such request I shall now address the issue raised by Fessenden under N.J.S.A. 12A:2-702.
Fessenden seeks a judgment in its favor as set forth in the Consent Order under the provisions of section 12A:2-702 of the Uniform Commercial Code adopted by New Jersey.1
Though the goods in question were delivered to the Debtor within ten days of the *550demand by Fessenden for their return and the Debtor, for the purpose of the disposition of the issue raised by Fessenden’s Complaint, admits it was insolvent, it denies that 2-702 is effective because it seeks to impress a statutory lien in violation of the provisions of Section 67 of the Bankruptcy Act (11 U.S.C. § 107).2
Whether the seller’s right to reclaim under § 2-702 is a statutory lien within the meaning of § 67 of the Bankruptcy Act was resolved by the United States District Court for the District of New Jersey in In re Good Deal Supermarkets, Inc., 384 F.Supp. 887 (1974). Therein the then Chief United States District Court Judge, Whipple, held, affirming the decision of the Bankruptcy Court, that Section 12A:2-702 sought to promote a “state created priority” for the benefit of a particular class of creditors which is hostile to the philosophy and intent of the Bankruptcy Act, which provides for an order of distribution of assets. Id. at 889. That decision holds that Section 2-702 of the Uniform Commercial Code is in conflict with the provisions of Section 67 of the Bankruptcy Act and the asserted statutory lien is null and void. This decision was followed by Judge Hill in the case of C. Itoh (America) Co., Inc. v. Cohn (In re Garden State Farm Supply Co., Inc.) 3 Bankr.Ct. Dec. 1195 (1978).
The issue now before the Court is on all fours with Good Deal and, therefore, the debtor must prevail over Fessenden.
The Plaintiff Fessenden cites cases of other jurisdictions which could lead to a contrary holding in its favor, and seeks a decision by me in accord with such cases. However, there are cases in other jurisdictions which are in accord with the decisions by the District and Bankruptcy Court of this District.3
The controlling authority in this case in this District is the decision of Good Deal by Judge Whipple. Though other Circuit Courts may have decided the issue contrary to the rationale of Good Deal, such decisions are not binding on this Court. I am bound by stare decisis to follow Good Deal and find that Fessenden does not have a valid statutory lien under § 2-702 on the goods sold by it to the Debtor but, to the contrary, find it is invalid under the provisions of § 67, set forth herein, of the Bankruptcy Act. Since appeals from Bankruptcy Judges’ decisions and orders lie to the Judge of the United States District Court of New Jersey, the decisions rendered by the District Court on appeals from the Bankruptcy Court are controlling upon the same issues.
Moreover, even if I would be permitted to now weigh the conflicting decisions of the *551various districts, contrary to the preceding paragraph, and render an opinion without regard to stare decisis, I would render a decision in favor of the Debtor. The Legislative Report associated with the enactment of Section 67 of the Bankruptcy Act, as stated by Judge Whipple in Good Deal, page 889, reflects the salient reason for supremacy of Section 67 over priorities in distribution sought to be established by State Legislatures.
I am in accord with Good Deal and Garden State Farm Supply, whereby the rights of Fessenden under § 2-702 as a statutory lien claimant are subject to the provisions of the Bankruptcy Act and the lien is invalid under the provisions of Section 67.4 As was stated by Judge Whipple in Good Deal, page 889, “[sjince the provisions of the Uniform Commercial Code in issue here conflicts with the Federal Statute it can have no application in a bankruptcy proceeding.”, I must find that Fessenden’s claim to the goods under the provisions of § 2-702 must be denied.
An Order shall be submitted in accordance with the foregoing findings of fact and conclusions of law.
. The right of a seller to reclaim goods delivered on credit to an insolvent buyer is contained in section 2-702(2) of the Uniform Corn-mercial Code, which provides in part as follows:
*550“(2) Where the seller discovers that the buyer has received goods on credit while insolvent he may reclaim the goods upon demand made within 10 days after the receipt, but if misrepresentation of solvency has been made to the particular seller in writing within 3 months before delivery the 10 day limitation does not apply. Except as provided in this subsection the seller may not base a right to reclaim goods on the buyer’s fraudulent or innocent misrepresentation of solvency or of intent to pay.
“(3) The seller’s right to reclaim under subsection (2) is subject to the rights of a buyer in ordinary course or other good faith purchaser under this chapter (12A:2-403). Successful reclamation of goods excludes all other remedies with respect to them.”
. § 67. Liens and Fraudulent Transfers. (11 U.S.C. § 107).
“a. (1) Every lien against the property of a person obtained by attachment, judgment, levy, or other legal or equitable process or proceedings within four months before the filing of a petition initiating a proceeding under this Act by or against such person shall be deemed null and void (a) if at the time when such lien was obtained such person was insolvent or (b) if such lien was sought and permitted in fraud of the provisions of this Act: . .
“(3) The property affected by any lien deemed null and void under the provisions of paragraphs (1) and (2) of this subdivision a shall be discharged from such lien, and such property . . . shall pass to the trustee of debtor, as the case may be . . ”
“c. (1) The following liens shall be invalid against the trustee:
(A) every statutory lien which first becomes effective upon the insolvency of the debtor
. See cases cited in Good Deal, supra, and Garden State Farm Supply, supra, and also Green, “Statutory Liens and the Bankruptcy Act: U.C.C. § 2-702 and Section 67(c)”, 10 Creighton L.Rev. 733 (1977).
. See Note (2) above. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488869/ | MEMORANDUM OF OPINION AND ORDER
JOHN F. RAY, Jr., Bankruptcy Judge.
This cause came on for hearing upon the Trustee’s motion for an order on Debtor to turn over to him nonexempt funds.
Debtor filed joint federal and state income tax returns after bankruptcy, with his wife who was not gainfully employed in 1979, for the taxable year 1979. Debtor and his spouse are entitled to refunds of $658.46 on their federal return and $9.27 on their Ohio return.
Debtor’s Schedule B-4, under “Property Claimed as Exempt”, shows:
“2. Federal and/or state income tax refund, R.C. 2329.66(A)(4)(a) — Amount Unknown.”
Subsequent to the hearing on Trustee’s motion on April 3, 1980, Debtor amended his schedules to claim as exempt the excess refunds due over $400.00 allowable under Ohio Revised Code Section 2329.66(A)(4)(a), namely $267.73 under Ohio Revised Code Section 2329.66(A)(17).
There being no factual dispute, this matter is to be decided solely upon the legal issue presented.
The Bankruptcy Code, which became effective October 1, 1979, provides that all property of the debtor becomes property of the estate.1 However, the debtor is permitted to exempt certain property from property of the estate under Section 522 of the Code.2 The debtor may choose either the exemptions specified in Section 522(d), or any property that is exempt under federal law other than sub-section (d) of Section 522 or exemptions under state law.
Section 522, at paragraph (b)(1), does permit a state to “opt out” of certain, but not all, federal exemptions, providing in the breach to the debtor those exemptions established by state law. In the 1979 Legislative session, the Ohio Legislature amended the general exemption statute, Ohio Revised Code Section 2329.662, to provide as follows:
“Pursuant to the ‘Bankruptcy Reform Act of 1978,’ 92 Stat. 2549, 11 U.S.C. 522(b)(1), this state specifically does not authorize debtors who are domiciled in this state to exempt the property speci*644fied in the ‘Bankruptcy Reform Act of 1978/ 92 Stat. 2549, 11 U.S.C. 522(d).”
Section 2329.66(A) of the Ohio Revised Code reads, in part, as follows:
“Every person who is domiciled in this state may hold property exempt from execution, garnishment, attachment, or sale to satisfy a judgment or order, as follows:
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“(4)(a) The person’s interest, not to exceed four hundred dollars, in cash on hand, money due and payable, money to become due within ninety days, tax refunds, and money on deposit with a bank, building and loan association, savings and loan association, credit union, public utility, landlord, or other person. This division applies only in bankruptcy proceedings. This exemption may include the portion of personal earnings that is not exempt under division (A)(13) of this section.
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“(17) The person's interest, not to exceed four hundred dollars, in any property, except that this division applies only in bankruptcy proceedings.” (Emphasis added)
It is the position of the Trustee that in enacting 2329.66(A)(4), the Ohio Legislature, in unequivocal language, provided that anything in the nature of cash or its equivalent in money is exempt in a bankruptcy proceeding in a sum of money not to exceed $400.00.
Section 2329.66(A)(17) deals with “any property” not to exceed $400.00, and applies only in bankruptcy proceedings. It is the position of the Trustee that since the term “any property” is a general term or generic term and money is a species of property or a specific property, the general statute must yield to the specific statute.
It is the Debtor’s position that in addition to the $400.00 tax refund exempt under Ohio Revised Code Section 2329.66(A)(4)(a), he is entitled to claim tax refunds in excess of $400.00 up to an additional $400.00 under Ohio Revised Code Section 2326.66(A)(17), by making the exemption in Ohio Revised Code Section 2326.66(A)(17) cumulative to the exemption in Section 2326.66(A)(4)(a).
The issue presented is whether or not the phrase “in any property”, as used in Ohio Revised Code Section 2329.66(A)(17), may include tax refunds and be applied to the excess tax refund due over $400.00 allowable specifically under Ohio Revised Code Section 2326.66(A)(4)(a) to create a maximum allowable exemption of $800.00 for the Debtor.
Section 2329.66(A)(17), Ohio Revised Code, is a spill-over exemption and similar to Section 522(d)(5) of the Bankruptcy Code, except that Code Section 522(d)(5) permits a debtor to claim the unused portion of the homestead exemption under 522(d)(1) in addition to the $400.00 exemption.
In Collier On Bankruptcy, Fifteenth Edition, Volume 3, paragraph 522.14, in discussing Section 522(d)(5), it is said:
“The debtor is allowed an exemption of $400 plus the unused portion of the homestead exemption. The purpose of this exemption is to prevent discrimination against nonhomeowners. The homeowner who uses the full amount of the homestead exemption, however, is still entitled to the $400 exemption. If, for example, there is an item of furniture that has a value greater than $200, thus not exempt under the household furnishings exemption of paragraph (3), the debtor may apply the $400 toward this furnishing. The unused portion of the homestead exemption plus the $400 may be claimed in any property, be it property that is exempt in excess of the value allowed by a particular paragraph of section 522(d), or property that is otherwise nonexempt.” (Emphasis added)
Sections 2329.66(A)(4)(a) and 2329.66(17), Ohio Revised Code, should be read in pari materia rather than negating the latter, because it is a general or spill-over exemption. As stated in American Jurisprudence, with specific reference to bankruptcy laws:
*645“It is among the elementary principles with regard to construction of statutes, applicable to bankruptcy statutes as well as others, that every section, provision, and clause shall be expounded by reference to every other; and, if possible, every clause and provision shall avail, and have the effect contemplated by the legislature. One portion of a bankruptcy statute or act should not be construed to annul or destroy what has been clearly granted by another.” 9 Am.Jur.2d, Bankruptcy, § 16.
Trustee’s position fails to take into account the intent of Congress in seeing that a debtor who petitions the Bankruptcy Court for relief receives sufficient property to begin a fresh start. The exemptions under sub-sections (A)(4)(a) and (17) of Section 2329.66, Ohio Revised Code, enunciate a bankruptcy policy favoring the fresh start, since both sections are only applicable in bankruptcy proceedings. Therefore where the intent of the Legislature is clear, a Court should not legislate by placing limitations unexpressed by the Legislature. The State Legislature of Ohio, in enacting Section 2329.66, Ohio Revised Code, placed no limitation with respect to sub-section (17), spill-over exemption, but on the contrary said it applied to “any property”.
The word “property” is commonly used to denote everything which is the subject of ownership, corporeal or incorporeal, tangible or intangible, visible or invisible, real or personal, everything that has an exchange value or which goes to make up wealth or estate. It extends to every species of valuable right and interest, and includes real and personal property, easements, franchises and incorporeal hereditaments.3 Under the foregoing definition of property, “tax refunds” would be included.
Debtor may claim as exempt tax refunds to the extent of $400.00 under Section 2329.66(A)(4)(a), Ohio Revised Code, and, in addition, may claim as exempt the excess tax refund over $400.00 up to an additional $400.00 under Section 2329.66(17), Ohio Revised Code.
Accordingly, the motion of the Trustee is denied.
. 11 U.S.C. § 541.
. 11 U.S.C. § 522.
. Samet v. Farmers’ & Merchants' National Bank of Baltimore, C.C.A.Md., 247 F. 669, 671; Globe Indemnity Co. v. Bruce, C.C.A.Okl., 81 F.2d 143, 150. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488870/ | MEMORANDUM
RALPH H. KELLEY, Bankruptcy Judge.
The plaintiff filed a complaint to avoid a transfer of debtor’s property to defendant.
The defendant filed an answer denying the allegations of the complaint.
The matter was heard in open court and from the proof and the entire record the court makes the following findings of fact:
On June 12, 1979 defendant made a loan to debtor to purchase a van from Ken Gardner Ford. Debtor signed a security agreement and defendant relied upon the seller to apply for the certificate of title with lien of defendant noted. The seller did not apply for the certificate until about the beginning of August. The title was issued by the State of Tennessee on August 15, 1979.
The debtor filed his petition in bankruptcy on October 10, 1979.
Plaintiff in her brief asserts:
. the perfection of the lien by the defendant-creditor in this case on or *653about August 12, 1979, within ninety (90) days of the filing of this petition under Chapter 7, constituted a preferential transfer under 11 U.S.C. § 547. The obligation of June 12, 1979, was an antecedent debt.
The defendant in its brief asserts:
. under the peculiar facts of this case, the perfection of its security interest in August, 1979 was not “for or on account of an antecedent debt.” In the alternative the defendant asserts that its security interest may be upheld under one of the exceptions to the trustee’s power of avoidance.
The concluding paragraph of defendant’s brief states:
Any delay in the perfection of defendant’s security interest occurred in the normal course of business and could not have been avoided by the defendant. This Court is a court of equity. See 92 Stat. 2549 (1978), §§ 241(a), 405(a & b). If the Court should find that the perfection of defendant’s security interest in this case was a preference, defendant would be left without an adequate remedy at law. Therefore, the defendant would ask the Court to construe the preference statute equitably so as to uphold the defendant’s security interest.
CONCLUSIONS OF LAW
A preference is a transfer that enables a creditor to receive payment of a greater percentage of its claim against the debtor than it would have received if the transfer had not been made and it had participated in the distribution of the assets of the bankrupt estate.
The above definition of a preference is made operative by the five elements of 11 U.S.C. § 547(b). To establish a voidable preference the trustee must prove:
[a] transfer of property of the debtor-
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made-
(A)on or within 90 days before the date of the filing of the petition .
(5) that enables such creditor to receive more than such creditor would receive if-
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
If the transferee creditor can show that any one of the five requirements has not been met, then the trustee cannot recover. In the present case the transferee-defendant denies that the transfer was “on account of an antecedent debt.”
The defendant also relies upon 11 U.S.C. § 547(c) which provides that certain types of transfers may not be’ set aside as preferences, although they literally fall within the statutory definition of a preference. The exception relied upon by defendant reads as follows:
(c) The trustee may not avoid under this section a transfer&emdash;
(1) to the extent that such transfer was -
(A) intended by the debtor and the creditor to or for whose benefit such transfer was made to be a contemporaneous exchange for new value given to the debtor; and
(B) in fact a substantially contemporaneous exchange;
The defendant cited the first exception but did not mention the third which reads as follows:
(c) The trustee may not avoid under this section a transfer-
(3) of a security interest in property acquired by the debtor-
(A) to the extent such security interest secures new value that was-
*654(i) given at or after the signing of a security agreement that contains a description of such property as collateral;
(ii) given by or on behalf of the secured party under such agreement;
(iii) given to enable the debtor to acquire such property; and
(iv) in fact used by the debtor to acquire such property; and
(B) that is perfected before 10 days after such security interest attaches.
The above exceptions need to be read with 11 U.S.C. § 547(e). It sets out when a transfer of personal property is made for the purpose of § 547. A transfer is made when it takes effect between the parties if it is perfected against judgment lien creditors then or within ten days thereafter. Otherwise, it is made when perfected, or if not perfected before bankruptcy, it is deemed to have been made immediately before bankruptcy.
In regard to that provision Professor Vern Countryman in Bankruptcy Preferences — Current Law and Proposed Changes, 11 U.C.C.L.J. 95 (1978) commented at page 100:
[Djelay in or failure to perfect will move the transfer forward — closer to bankruptcy, either at the time of the delayed perfection or, if there never was a perfection, as in the Corn Exchange case, to a time immediately before bankruptcy. In Corn Exchange, what was in fact a present advance against an assignment of accounts receivable was converted by the failure of the secured creditor to perfect into a transfer for antecedent debt.
For the purpose of § 547 the transfer was made, at the earliest, around the beginning of August. 11 U.S.C. § 547(e) (1979); Tenn.Code Ann. § 55-3-126 (Repl. Vol. 1980). The debt was incurred in June. It was therefore antecedent to the transfer. The defendant’s contention that the debt was not antecedent ignores § 547(e).
The third exception in § 547(c) applies specifically to the facts before the court. The court will consider it before the more general exception in § 547(c)(1).
With reference to the third exception there is a comment in A Practical Guide to the Bankruptcy Reform Act (1979) by Harvey R. Miller and Michael L. Cook. It appears on page 313 as follows:
Purchase Money Security Interests. If the debtor grants a security interest to secure an “enabling” loan, there will be no preference so long as the security interest “is perfected [no later than] 10 days after such security interest attaches.” In fact, the loan secured by the purchase money security interest in the debtor’s property must have been “given to enable the debtor to acquire such property” and the proceeds of the loan must “in fact [be] used by the debtor to acquire such property.”
Another comment:
The third exception to the preference section exempts security interests granted in exchange for enabling loans. The requirements are strict The enabling loan must not predate the security agreement, the proceeds of the loan must in fact be used to purchase the collateral, and the security interest must be perfected no later than 10 days after it attaches. [Emphasis added]
The above comment appears in an article entitled An Introduction to the Trustee’s Avoiding Powers by Richard B. Levin, 53 Am.Bankr.L.J. 173, 187 (1979). The comment is particularly significant since Mr. Levin was on the House Judiciary Committee staff that drafted the Code.
The defendant’s security interest was not perfected within ten days after it attached. Tenn.Code Ann. § 47-9-204 (Repl. Vol. 1979). Section 547(c)(3) does not help the defendant. The defendant says that it nevertheless should be protected under § 547(c)(1).
In the article cited above Mr. Levin discusses the intent of that exception at page 186:
The first exception is a simple one, excepting a transfer that is really not on account of an antecedent [debt]. Literal*655ly, the transfer must have been intended by the debtor and the creditor to have been a contemporaneous exchange for new value and “in fact a substantially contemporaneous exchange.” No doubt a purchase by the debtor of goods or services with a check, if deemed to be on credit by state law, would be insulated by this exception. Though strictly speaking the transaction may be a credit transaction because the seller does not receive payment until the check is cleared through the debtor’s bank, it is generally considered and intended to be a contemporaneous transaction, and assuming the check is promptly deposited and cleared, is in fact substantially contemporaneous.
Here the court must point out some conflict between the first exception and the third exception in § 547(c). The third exception protects a purchase money security interest perfected within ten days after it attaches. The question is whether that is the only exception for purchase money security interests or is the first exception also applicable. The court need not decide. Even if § 547(c)(1) is applied, it does not protect this transaction, for the reasons given below.
The defendant argued that “any delay in perfection of the defendant’s security interest occurred in the normal course of business and could not have been avoided by the defendant.” The vehicle bought by the debtor had been used by the seller in its leasing operations. The seller had not fully paid for the vehicle when it was sold to the debtor. Ford Motor Credit Company held the certificate of title with its lien noted in its Detroit office. With the defendant’s loan the debtor paid the seller who then paid Ford Motor Credit Company. Ford Motor Credit Company then released its lien and forwarded the certificate to the seller. The seller immediately applied for title, but more than a month had elapsed since the sale. Most of the delay is attributable to the necessity of obtaining good title from Ford Motor Credit Company.
The grant of the security interest is the transfer in question. 11 U.S.C. § 101(40) (1979). For the purposes of the preference section it was made when the security interest was perfected. 11 U.S.C. § 547(e) (1979). The transfer thus was made several weeks after the debtor incurred the debt and acquired the collateral.
The facts argue for application of the exception, but because of the substantial time between the time of the transfer (when the security interest was perfected) and the making of the debt, the court finds that the exchange was not in fact substantially contemporaneous.1 Furthermore it was not shown that the debtor or the defendant took any action after the purchase to perfect the security interest or see that the seller perfected it within a reasonable time.
Neither exception helps the defendant. The trustee is entitled to the vehicle in question.
By agreement of the parties the vehicle has been sold and the trustee is holding the net proceeds subject to the orders of this court.
Also the parties are to calculate payments to creditor during the ninety (90) days preceding the filing of bankruptcy. These payments constitute a preferential transfer and will be avoided.
The trustee will prepare a judgment in accordance with this memorandum.
This memorandum constitutes findings of fact and conclusions of law. Rule 752, Bankruptcy Rules.
. The court notes that the Tennessee legislature has concluded that perfection of a purchase money security interest within 20 days after the debtor receives the collateral should give the secured party priority over other security interests in the same collateral. Tenn.Code Ann. § 47-9-312(4) (Repl. Vol. 1979). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488871/ | MEMORANDUM OPINION
EUGENE J. RAPHAEL, Bankruptcy Judge.
The overriding legal question to be decided in this adversary proceeding is the effect to be given to Mississippi Code sections 79-3-155 and 79-3-157, which deal with mortgages of all or substantially all of the assets of a corporation.
Background
James Calvin Belk Construction Co., Inc., the debtor in this Chapter 11 case (hereafter debtor or the corporation) is in the business of buying the component parts of grain-storage bins and assembling and erecting such bins on farms. Debtor’s headquarters was and is at Cleveland, Mississippi. Debtor was chartered in April, 1977, and succeeded and took over a similar business which had been conducted for some years by James Calvin Belk individually. At the outset, Mr. Belk and Carey B. Prather were the sole stockholders, each owning 50% of the stock. At the organizational meeting which was held May 5, 1977 at the Leland office of Taylor Webb, the attorney who handled the incorporation of the debtor, James Calvin Belk, Carey B. Prather, Bryan Prather and Stan Prather were elected to serve as directors until the first annual meeting. James Calvin Belk was elected president and Carey B. Prather was elected vice-president, secretary and treasurer. Following the organizational meeting, Mr. Webb was not called on to do any further legal work for the corporation, although apparently the corporate minute book remained in his possession.
The minutes of a director’s meeting held on May 11,1978 reveal that Carey B. Prather had transferred one share of his stock to James Calvin Belk, giving the latter ownership of 51% of the corporation’s stock. These minutes also indicate that Mr. Andrew M. W. Westerfield had succeeded Taylor Webb as attorney for the corporation. Mr. Westerfield testified that the officers of the corporation had been unable to find the original corporate By-Laws and that he had been instructed to draw up a new set of By-Laws, which were introduced at the trial as Defendant’s Exhibit “N”. These new By-Laws changed the date of the annual meeting to the second Monday of January, beginning with the year 1979 and provided for a board of six directors, whereas the original By-Laws, as well as the Charter (which has not been amended) provided for four directors. Article III of the new ByLaws also contained the following unusual provisions with regard to the functioning of the Board of Directors:
Section 6. Quorum. A majority of the voting stock (more than fifty percent (50%) based on the number of shares owned by the director, See Article III, Section 7 below) present at a meeting will constitute a quorum.
Section 7. Manner of Acting. The Board of Directors at all times will be made up of stockholders in the corporation. A director’s vote on any matter will be determined by the number of shares owned by him and an act of the majority of the stock voted at a meeting shall be the act of the Board of Directors.
*134Thus, assuming, without deciding, that these provisions are valid, James Calvin Belk, although as president he was subject to control by the Board (Article IV, Section 5) could, as the owner of 51% of the corporate stock, outvote all the other directors combined, and indeed, so long as proper notice of a meeting had been given, could sit in solitary splendor as a quorum of the Board and vote any resolution he might choose,. though no one else was present.
The record is not clear when (or whether) these new By-Laws were formally adopted, since no minutes of a meeting of stockholders or directors adopting them was introduced at the trial. However, the 1979 annual meeting of stockholders was held on the second Monday of January in that year and six directors were elected at that meeting, so it must be presumed that these are at least the de facto By-Laws of the corporation, although the defendant’s brief “concedes” that the By-Laws drawn by Webb were in effect “at all pertinent times.”
Meanwhile, as revealed by the minutes of the 1979 annual meeting as well as by the testimony, Carey Prather had transferred to others a majority of the shares he had owned, so that by the time of the 1979 annual meeting, and from then on, the lineup of shareholders (Plaintiff’s Exhibit 7) was as follows:
James Calvin Belk — 51%
Carey B. Prather — 20%
Emmett McKnight — 14%
Roy Norquist — 5%
James David Norquist — 5%
Barbara Belk — 5%
At the 1979 annual meeting the above six stockholders were elected directors and the following officers were elected:
President — J. C. Belk (hereafter, Belk)
Vice-President — Emmett McKnight
Vice-President — Barbara Belk (hereafter, Mrs. Belk) Secretary — Carey B. Prather
Treasurer — Carey B. Prather
Relations with S. F. Kennedy-New Products, Inc.
The minutes of the 1979 annual meeting reflect that, at the time of the annual meeting, the corporation was trying to obtain a loan from the Small Business Administration. Apparently the SBA did not grant debtor’s request for a loan. In March 1979 Mr. and Mrs. Belk went to Taylorville, Illinois for a meeting with officials of S. F. Kennedy New Products, Inc. (hereafter New Products or defendant), debtor’s largest creditor and principal supplier. Present for defendant were Mr. Sam Kennedy, James E. Richter, Eugene B. Pollock and Ronald J. Kibler. Mr. and Mrs. Belk were the sole representatives of debtor at this meeting. The Belks explained that debtor was in a tight cash position. At that time debtor owed New Products $390,000, could not pay it, could not get financing elsewhere and could not continue to operate unless they could obtain additional essential materials on credit. They told the New Products people that they would have to have at least $150,000.00 in new credit if they were to continue to operate. The upshot of the meeting was an informal, handwritten, but fairly detailed agreement granting debtor an additional $150,000 in credit, with the entire debt, old as well as new, to be secured by liens on all of the debtor’s property, a life insurance policy on Belk’s life and individual guarantees, and with a covenant by debtor to purchase solely from New Products those items which New Products produced.
The New Products people asked Mr. and Mrs. Belk whether they were “authorized” to enter into this agreement on behalf of debtor. They replied that they were. One of defendant’s witnesses quotes Mrs. Belk as saying, “Hell, we are the corporation.” There is nothing in the record, however, to show any specific inquiry by defendant’s representatives as to who were the directors or shareholders of the debtor.
After the March 23 meeting, the Belks returned to Cleveland and later New Products’ secretary-treasurer, R. J. Kibler, came to Cleveland for the purpose of entering into a more formal agreement to replace the hand-written one entered into at Tay-lorville. Mr. Robert Johnston, a member of the Cleveland law firm of Alexander, Johnston and Alexander, represented New Products in the consummation of the new con*135tract and the execution of supporting documents. This contract, which is dated April 13,1979, names New Products as “Vendors” and the debtor and James C. Belk and Barbara Belk, collectively, as “Vendees.” Under this contract:
1. “Vendees” were to execute a promissory note in the principal amount of $587,-665.71 payable on demand.
2. To secure the note “vendees” are to execute a deed of trust to vendor covering the debtor’s business real estate at 711 North Chrisman Street, the “undeveloped” business realty on the north side of Carpenter Street and the residence of Mr. and Mrs. Belk, all in Cleveland, Mississippi.
3. To further secure the note “vendees” agree to grant “vendor” a security interest under the U.C.C. on all other property owned by debtor, including but not limited to inventory, accounts receivable, contracts, fixtures, vehicles, tools, equipment, choses in action, notes, contracts, commercial paper, good will, value as a going concern, and any and all other property owned by the debtor.
4. So long as anything remains owing on the note, “vendees” agree to purchase exclusively from “vendor” all galvanized metal body sheets, roofs, floors, fans and heaters, stirring devices, ladders and other accessory and related equipment and supplies for the construction of grain bins, that “vendor” manufactures and that “vendees” can use or need.
5. The parties “agree” that the above provision for exclusive dealing is not in restraint of trade and does not create a monopoly and further agree that in the event of breach of this agreement the “vendor” would have no adequate remedy at law and would be entitled to an injunction.
6. $587,665.71, the amount of the note, is the maximum credit “vendor” will extend to “vendees.” Payment for merchandise purchased will be on terms of 2% ten days, net 30.
7. “Vendees” agree to pay “vendor” all sums received by “vendees” not needed in the day to day operation of the business; not to purchase capital items in any one year in excess of $10,000.00 without “vendors” written consent; and not to raise officers’ or stockholders’ salaries or pay dividends in excess of those currently in effect. “Vendor” will not notify those owing accounts payable to “vendees” of the assignment to “vendor”, unless there is a default on the note and “vendor” reasonably deems itself insecure.
8. “Vendees” were to furnish an audit by a C.P.A.
9. “Vendees” will not create or voluntarily permit any additional consensual liens on the property of the debtor or the Belks and agree to notify “vendor” or any “involuntary” liens.
10. “Vendees” will permit “vendor” to inspect “vendees” books and records at all reasonable times and furnish any reasonable business and financial information requested by “vendor.”
11. “Vendees” agree to assign to “vendor” a $100,000 policy on James C. Belk’s life and a $50,000 policy on Barbara Belk’s life and to pay the premium therefor as they become due.
12. The individual “vendees” personally guarantee all obligations of the corporate vendee, now owing to vendor or arising in the future.
13. Vendees agree not to borrow any sums of money from this date on which would exceed at any one time $10,000.00 without the prior written consent of “vendor.”
The notes, deeds of trust, security agreement on personal property and U.C.C financing statements in connection therewith were all duly executed. The financing statements were promptly filed in the proper offices and the deeds of trust were duly recorded, thus purportedly giving New Products duly perfected liens on all of the property of the debtor, real and personal, tangible and intangible. Debtor, in accordance with the arrangement continued to obtain materials and supplies from New Products on credit.
*136The next notable event in this saga took place in June, 1979. Debtor wanted to operate in Arkansas and was blocked from obtaining a license there because of the existence of the large demand note it had executed to New Products in April. So once again the Belks asked New Products for more accommodation and New Products obligingly agreed. By an “addendum” to the previous contract, the demand note was replaced by a slightly larger note, this one for $598,775.01, payable in seven annual installments, the first one of $50,000 a year from date, then five annual installments of $100,000 each and then a final installment of $48,775.01.
The “vendees” executed a new deed of trust to secure the new note, covering the same real property that was in the former deed of trust. It was also agreed that all security agreements signed in connection with the April note were to be deemed to secure the new note without the necessity of actual execution of new instruments, and that all the provisions of the agreement dated April 13, 1979 were to be applicable to the new note; that said agreement of April 13 was to remain in full force and effect and that the addendum agreement was not a novation or new contract but merely an agreement for the renewal and extension of the April note — “except for the matters provided in the next paragraph.”
The “next paragraph” gave New Products, in consideration of the “vendor” permitting the “vendees” to make the new note on extended terms, an assignment, lien on and security interest in a third party claim which debtor had made in certain litigation pending in Louisiana against Hunter Manufacturing Company. “Vendees” also authorized their attorneys in that suit to pay any monies recovered by them directly to “vendor”, to be applied to payment of the new note.
The addendum agreement bears date June 20, 1979 but it was not actually executed until July, because Mr. Kibler, who was to sign it on behalf of New Products, was unable to come to Mississippi for that purpose until after July 4th.
There can be no question that throughout this period, New Products had been extremely good natured and cooperative in its treatment of debtor. While they did seek to protect themselves by taking liens on debtor’s assets, they nevertheless did acquiesce in all of debtor’s requests for extensions of time and they did continue to ship merchandise in spite of the fact that the past due account was very large and getting larger. However, in mid-July of 1979, New Products appears to have become disenchanted with the situation. The debtor’s payments on the account were still minimal and New Products declined to make any more shipments on credit. Mr. and Mrs. Belk again requested a meeting and once again went to Illinois, this time to Decatur. They told New Products’ representatives that they could not continue in business unless New Products continued to ship them merchandise. A new agreement was reached, apparently not reduced to writing, under which New Products would continue to ship and the Belks agreed to notify debt- or’s customers to make all remittances payable jointly to debtor and New Products. New Products did continue to ship but the debtor did not notify its customers about the change in the form of their remittances.
In August, 1979, New Products sent representatives to debtor’s plant. According to defendant’s brief, their function was “to assist Belk in the collection of its accounts”. Customers were notified to make their checks payable jointly to New Products and debtor. While these checks were deposited thereafter to Belks’ bank account, and while debtor was allowed to continue to operate its business, withdrawals from the debtor’s bank account could be made only for such purposes and in such amounts as the New Products representative would approve. Much of the money collected from debtor’s customers in this period was allowed to be used for payroll and other purposes connected with debtor’s business, but effective control of finances and through them of debtor’s business, however benign that control may have been, was in *137New Products. From then on, debtor could do only such business as New Products permitted it to do.
Even that situation did not last long. On September 12, 1979, New Products, apparently believing that in spite of its supervision, there were still leaks or irregularities in the cash pipeline, declared the note of June 20 in default and, pursuant to the provisions of the April 13 and June 20 contracts, notified all customers to pay only to it, and from then on, New Products itself collected accounts owing to Belk. About this time, J. C. Belk and Barbara Belk left the debtor’s employ (or were excluded by New Products). J. C. Belk went to work on a salary basis for a similar business formed at that time by his daughter. Even then, the debtor’s business continued under New Products’ supervision, using for its operation some of the accounts being collected by New Products’, but the business done was limited to the completion of jobs which had already been commenced.
Operations ceased in late October or early November and on November 14, 1979 New Products and two other creditors filed án involuntary petition against debtor for relief under Chapter 7 of Title 11. The following day the debtor filed its voluntary petition under Chapter 11 of Title 11.
The present adversary proceeding was commenced by a complaint filed by the debtor and Carey B. Prather one of its stockholders. At the trial, J. C. Belk, Barbara Belk, the Norquists, Emmet McKnight, Roy Norquist and James David Norquist were permitted to join in the action as plaintiffs. Thus, all of the stockholders of debtor have joined in this action. The complaint alleges the invalidity of the agreements dated April 13 and June 20, 1979 and of the deeds of trust, security agreements and other instruments executed in connection therewith. It seeks to set aside all of the agreements and instruments as invalid for the reason that Sections 79-3-155 and 79-3-157 of the Mississippi Code of 1972 were not complied with. The complaint demands that New Products bring back to debtor’s place of business in Cleveland, Mississippi and redeliver to debtor there all of the tangible property it took possession of pursuant to the above mentioned agreements and instruments and that it pay over to debtor all sums collected by New Products from accounts payable debtor’s of J. C. Belk Construction Company, Inc. The complaint also seeks preliminary and final injunctions.
A temporary restraining order was entered and was followed by an agreed preliminary restraining order enjoining New Products pendente lite, from disposing of any vehicles or other personal property owned by or acquired from debtor. The order permits New Products to continue collecting accounts receivable owing to debtor but requires that all such collections be deposited in a separate bank account from which withdrawals can be made only on further order of the court.
Validity of Consensual Liens Held by New Products
Whether the deeds of trust and other security agreements executed in connection with the April 13 and June 20, 1979 agreements can survive plaintiffs’ attack depends very largely on the interpretation to be given to Sections 79-3-155 and 79-3-157 of the Mississippi Code of 1972. These Sections read as follows:
§ 79-3-155. Sale or mortgage of assets in regular course of business.
The sale, lease, exchange, mortgage, pledge, or other disposition of all, or substantially all, the property and assets of a corporation, when made in the usual and regular course of the business of the corporation, may be made upon such terms and conditions and for such considerations, which may consist in whole or in part of money or property, real or personal, including shares of any other corporation, domestic or foreign, as shall be authorized by its board of directors; and in such case no authorization or consent of the shareholders shall be required.
§ 79-3-157. Sale or mortgage of assets other than in regular course of business.
*138A sale, lease, exchange, mortgage, pledge, or other disposition of all, or substantially all, the property and assets, with or without the good will, of a corporation, if not made in the usual and regular course of its business, may be made upon such terms and conditions and for such consideration, which may consist in whole or in part of money or property, real or personal, including shares of any other corporation, domestic or foreign, as may be authorized in the following manner:
(a) The board of directors shall adopt a resolution recommending such sale, lease, exchange, mortgage, pledge, or other disposition and directing the submission thereof to a vote at a meeting of shareholders, which may be either an annual or a special meeting.
(b) Written or printed notice shall be given to each shareholder of record entitled to vote at such meeting within the time and in the manner provided in this chapter for the giving of notice of meetings of shareholders, and, whether the meeting be an annual or a special meeting, shall state that the purpose, or one of the purposes, of such meeting is to consider the proposed sale, lease, exchange, mortgage, pledge, or other disposition.
(c) At such meeting the shareholders may authorize such sale, lease, exchange, mortgage, pledge, or other disposition and may fix, or may authorize the board of directors to fix, any or all of the terms and conditions thereof and the consideration to be received by the corporation therefor. Each outstanding share of the corporation shall be entitled to vote thereon, whether or not entitled to vote thereon by the provisions of the articles of incorporation. Such authorization shall require the affirmative vote of the holders of at least two thirds (%) of the outstanding shares of the corporation, unless any class of shares is entitled to vote as a class thereon, in which event such authorization shall require the affirmative vote of the holders of at least two thirds (%) of the outstanding shares of each class of shares entitled to vote as a class thereon and of the total outstanding shares.
(d)After such authorization by a vote of shareholders, the board of directors nevertheless, in its discretion, may abandon such sale, lease, exchange, mortgage, pledge, or other disposition of assets, subject to the rights of third parties under any contracts relating thereto, without further action or approval by shareholders.
In determining the validity of a mortgage of real or personal property this court must apply local law, in this case the law of Mississippi. United States v. Jones, 10 Cir., 229 F.2d 84. However, there does not appear to be any reported Mississippi case in which either of these sections of the Mississippi Code was interpreted or applied. We are thus thrown back on the rule that where state law is silent upon a question and there is a conflict of decisions in other jurisdictions, the federal court construing the law will assume that the state court would follow the weight of authority. United States v. Jones, supra, at p. 86.
The defendant argues that under the facts of this case the April and June contract and the documents executed in connection therewith, were made in the usual and regular course of the business of the corporation and that therefore only § 79-3-155 applies and there was no necessity for authorization or consent on the part of shareholders. They have introduced into evidence the minutes of a meeting of the Board which purportedly was held at the office of the company on April 6,1979. The minutes recite that James Calvin Belk, Carey B. Prather and Barbara Belk, a quorum of the Board were present. They also recite that “all directors had been given written notice personally delivered and had consented to the transaction, if any, of business which may come before this meeting.” It then recites that J. C. Belk informed the directors of the indebtedness to New Products in the account of $587,655.71 and of the negotiations with New Products to enter into agreements to secure the payment of said indebtedness and on motion unani*139mously carried J. C. Belk was empowered to enter into contracts and agreements with New Products to insure the payment of the indebtedness to New Products. These minutes were signed only by J. C. Belk. No copy of the “written” notice of the meeting was attached and no waiver of notice.
The testimony of both the Belks and of all the stockholders (who were also directors) was to the effect that no notice of the meeting was given or received. The Belks and Prather, the ones who were supposed to have attended, testified that the meeting had not actually been held. Their testimony was uncontradicted and was not impeached in any way. They are, of course, interested parties. Nevertheless, I believe them. I find that (1) no notice of this meeting was given to the directors and (2) that the meeting did not actually take place. Furthermore, even if it had, there was no quorum present. The By-Laws that the corporation was operating under were the ones drawn by Westerfield and the annual meeting in January, 1979 elected six directors. In my opinion these were de facto the By-Laws of the corporation and the presence of four directors would have been necessary for a quorum, despite Section 6 of Article III of these By-Laws. Mississippi law requires the presence of at least a majority of the board at any meeting. Mississippi Code of 1972 § 79-3-77. There is also in evidence a paper headed “Directors’ Ratification Agreement” and dated April 16, 1979 (Plaintiff’s Exhibit 2) which states sets forth an authorization, ratification and approval of the contract of April 13, 1979 and the execution by James C. and Barbara Belk on behalf of the corporation of all notes, deeds of trust, assignments, U.C.C. financing statements and security agreements and other documents. This document has five lines for signatures, but it is signed only by J. C. Belk and Barbara W. Belk.
Furthermore, consent by the directors was not sufficient. The deeds of trust and security agreement, taken together, mortgaged to New Products all or substantially all of the property of the corporation and were not in the regular corporation course of business. It was not a purchase money mortgage except as to supplies subsequently delivered. This corporation was not in the business of buying and selling real estate or business equipment. The only cases I have seen which have sustained mortgages of all the property of a corporation, without stockholders’ consents, have been cases where the business of the corporation was to trade in real estate and the mortgage was given to secure payment of the purchase price of real estate. I hold that compliance with Section 79-3-157 of the Mississippi Code of 1972 was necessary to make these security transactions valid. Concededly there was no meeting of stockholders. That does not end the matter, however.
As stated earlier, there are no reported Mississippi cases construing this statute. There are similar statutes in many other states, although there are variations from state to state with respect to the percentage of shares which must ratify the agreement. Cases construing these statutes are gathered together in a comprehensive annotation in 58 A.L.R.2d 785, and see also 19 Am.Jur.2d, Corporations, Sections 1013 and 1014. While there are a few cases to the contrary, the weight of authority seems to be that statutes such as this are for the benefit of stockholders only and that the statute cannot be enforced by the corporation itself, or by its creditors or by its trustee in bankruptcy. I hold, therefore, that as to the plaintiff, James Calvin Belk Construction Company, Inc. (whether it be regarded as the debtor, or as the debtor in possession) the complaint must be dismissed.
However, the complaint also named Carey B. Prather as a party plaintiff and he is a stockholder. The remaining stockholders were permitted at the trial to participate as parties plaintiff, and they qualify as persons on whose behalf the statute may be enforced. But the defendant claims that the stockholders were aware of the transactions between debtor and New Products and that their failure to object to the execution of these mortgages and other securi*140ty instruments stands in the way of their being able to recover. The weight of authority in other jurisdictions is certainly clear that the actual holding of a formal meeting of stockholders at which the statutorily prescribed number of shares are voted in favor of a resolution authorizing or ratifying the execution of a mortgage covering all or substantially all of the corporation’s assets is not necessarily a prerequisite to the validity of the mortgage. It is enough if they knew that the mortgages were to be executed and either approved or ratified such action by word or conduct, or that they knew of the execution of the mortgages and failed to take any action with respect to such execution under conditions which would create an estoppel. The Belks, of course, had complete knowledge of all the transactions with New Products. They signed the March 23, April 13 and June 20, 1979 agreements and the notes, mortgages, security agreements, etc. both individually and as corporate officers. They signed the purported minutes of a directors’ meeting and a ratification agreement. If they were the only plaintiffs the suit would fail. They were not the only stockholders or the only plaintiffs. They owned 56% of the outstanding shares of stock, which was a majority — but not the two thirds required by Mississippi Code of 1972, § 79-3-157. So we must look to the other stockholders to ascertain what their knowledge was.
The testimony was that the directors and stockholders other than the Belks had left the operation of the business completely to Mr. and Mrs. Belk. They permitted them to make all the decisions with reference to the business without consultation or report. One of the directors, Carey Prather, was not employed by the corporation or active in the business and was only infrequently at the place of business. Another was in charge of operations in the field and he also was infrequently at the debtor’s headquarters. The other two were employed at the debtor’s place of business but held very minor positions. The testimony of all the stockholders, including the Belks, was that they knew nothing of the granting to New Products of liens on all the corporation’s assets. Other than Prather, they were aware of the trips that the Belks made to defendant’s places of business in Illinois and Prather learned of the trips after they had been made. But none of them was ever informed as to the arrangements which the Belks had made with New Products nor were they aware of the mortgages and other security agreements which had been executed. They did not inquire as to details and they were not told any.
Defendant points out that Prather, McKnight and the Norquists were directors of debtor, as well as stockholders and, as such, were under a duty to know what the Belks were doing. But if these directors were under such a duty, the duty did not run to New Products. Defendant also claims that deeds of trust and financing statements were of record in the Chancery Clerk’s office in Cleveland and that such filing and recording constitutes notice. However, I know of no legal requirement that a director make searches of public records at any particular intervals, if at all. Of course, if one of them had seen the public record of debtor’s lien transactions with New Products, that would have been notice to him, but the testimony did not show any knowledge of the public records on the part of any of the stockholders. In deed, the testimony was to the effect that they had not seen these records.
The defendant next claims that the testimony of the Belks, Prather, McKnight and the Norquists that only the Belks knew the contents of the March, April and June agreements and of the documents executed to carry them out is simply incredible; that as stockholders and directors they should have been interested in knowing what was going on and that their failing to find out is inconceivable. Such lack of curiosity on the part of the minority stockholders may have been foolish, but I do not find it incredible. The Belks were in complete charge of the business and the others were content to leave it that way. Furthermore, the Belks owned 56% of the stock and the others might well not have wanted to get into an internal fight. I had the opportunity to observe these witnesses and to hear their testimony and I believe them. I find that *141none of the stockholders, other than J. C. Belk and Barbara Belk, knew about the deeds of trust and other liens, or about the contents of the March, April and June contracts, until September, 1979.
At the meetings in Mr. Johnston’s office, Johnston asked Westerfield, debtor’s attorney, to get him a “corporate resolution.” The resolution that was put in evidence as well as the ratification agreement, were prepared by Johnston. Westerfield got them signed by the Belks but they were not signed by anyone else and they were apparently not delivered to Johnston until September, 1979. There is no testimony whatever that either Mr. Johnston or any representative of New Products ever asked the Belks or Mr. Westerfield how many directors or stockholders there were, or who they were, or how many shares of stock each owned. There seems to have been no communication whatever on this subject, other than the Belks’ statement at the March meeting in Taylorville that they had the authority to make the agreement they signed there then. They may well have though they did have. They owned a majority of the shares of stock and there is nothing to show they were aware of the existence of Mississippi Code § 79-3-157.
I have said before, and I say it again, the officials of New Products were at all times, at least up until September, 1979 extremely generous and accommodating in their dealings with the debtor. Nevertheless, § 79-3-157 of the Mississippi Code of 1972 was in existence at the time of these transactions and, on the facts as I have found them, I do not see how the court can find in favor of New Products in this action without making that section completely meaningless. I conclude, therefore, that the minority stockholders, Prather, McKnight and the Nor-quists are entitled to prevail.
A judgment will be entered declaring void the deeds of trust on debtor’s real property in favor of New Products, declaring void the security interest taken by New Products in debtor’s inventory, equipment and accounts, including the debtor’s third party claim against Hunter Manufacturing Company. New Products will be ordered to return to debtor in possession at debtor’s place of business within thirty days whatever equipment it has removed from those premises, to reassign to debtor in possession immediately debtor’s claim against Hunter Manufacturing Company and to deliver to debtor within thirty days a list of all accounts receivable of the debtor which New Products has not yet collected and a reassignment to debtor in possession of such accounts. New Products will also be ordered to file within sixty days an accounting showing what sums have been collected by New Products pursuant to the assignment to it of such accounts, to show in said accounting, in detail, how such collections have been disposed of. New Products will be ordered to pay over to the debtor in possession a net sum to be arrived at by subtracting from the total of the accounts collected by New Products the total of all sums properly expended therefrom by New Products for the actual operating expenses of the debtor; but New Products may also withhold from said net sum an amount not exceeding the total of all merchandise sold and delivered by New Products to debtor subsequent to March 24,1979 and not heretofore paid for. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488872/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE came on to be heard upon plaintiff’s complaint to determine that its debt was non-dischargeable under Section 523(a)(2) of the Bankruptcy Code. The court, having heard the testimony of the witnesses and examined the evidence presented, having observed the candor and demeanor of the witnesses, having considered the arguments of counsel and being otherwise fully advised of the premises, does hereby make the following findings of fact and conclusions of law:
Plaintiff, Southern Discount Company is in the business of extending credit. On June 6,1978, defendant/debtor, Vonda Mosley, executed a promissory note in favor of plaintiff in the amount of $858.42. This loan was secured by property listed in a security agreement executed the same date. Prior to the granting of the loan, defendant, again on June 6,1978 was requested to fill out a form listing all of defendant’s indebtedness. This form was labeled a “financial statement”. This statement failed to list certain final judgments and a contingent liability for which the defendant and her ex-husband were liable in the total principal amount of $3,203.46.
Defendant, in explanation of her failure to list these and other liabilities, referred to a property settlement agreement entered into between herself and her former husband, Denford T. Mosley, Jr., dated November 21, 1974 and approved by the Final Judgment of Dissolution of Marriage entered February 7,1975. Paragraph 8 of the property settlement agreement provided:
The Husband does hereby agree that he will assume total complete financial responsibility for any present and existing bills, debts and obligations incurred by the parties, whether individual or joint and to save the Wife harmless thereon.
The defendant testified that she believed that this provision in the property settlement agreement absolved her of all responsibility for the liabilities she did not list on her statement submitted to the plaintiff.
Section 523(a)(2) of the Bankruptcy Code provides:
(a) A discharge under Section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt — .
(2) for obtaining money, property, services, or an extension, renewal, or refinance of credit, by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition; or
(B) use of a statement in writing—
(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for obtaining such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive;
The court finds that, in regards to Section 523(a)(2)(B)(i) and (ii), the written statement submitted to plaintiff was materially false, and, that such statement was made in reference to her financial condition. The amount of liabilities, excluding real estate, listed on defendant’s written statement, submitted by the defendant was $1,042. By not listing the amount of the final judgments and contingent liability, which totaled to $3,203.46, materially understated her financial liability. However, in regards to Section 523(a)(2)(B)(iv), the court finds that the defendant/debtor did not submit the materially false written statement with the intent to deceive. The court is convinced that the defendant honestly believed that the omitted debts were not her liability and that she made a good *179faith attempt to comply with plaintiff’s requested financial information.
The court having found that all the elements under Section 523(a)(2) have not been sufficiently established, it holds that defendant’s debt to plaintiff is entitled to be discharged by the bankruptcy proceedings.
A judgment will be entered in accordance with these findings and conclusions. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488873/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
The action pending before this Court arises from the differing methods, under Indiana and Florida law, of perfecting security interest in motorboats. The issue raised is purely legal, as the parties have stipulated to the facts; whether a creditor who perfects a security interest in a boat in the State of Indiana, but fails to perfect his interest in same in the State of Florida within four months after the debtor transfers the boat to the latter state with the creditors knowledge, has a valid lien as against the debtor’s trustee in Bankruptcy, after filing, by the debtor, of a voluntary petition in bankruptcy.
FINDINGS OF FACT
The bankrupt, James Gardiner Unger, purchased a 1977 twenty-four foot Sea Ray boat, No. 9859744 — 77—X, 240-WF-356-7, with a 1977 two hundred and fifty horsepower Mercury Cruiser Engine No. 72517G in the State of Indiana on August 4, 1977. The boat was financed by the defendant, Merchants National Bank and Trust Company (hereinafter Bank) and title was held by the bankrupt. The Bank obtained a security interest in the boat on August 10, 1977, by recording with the Clerk of the Circuit Court of Johnson County, Indiana. There is no question that this interest was properly perfected as between the bankrupt, Mr. Unger, and the Bank at that time. Thereafter, however, the bankrupt changed his residence, moving to the State of Florida, and taking his motorboat with him. He abided in Florida for six months, during which period of time he made all payments to the Bank in Indiana from Florida. Despite the fact that it had full knowledge as to the debtor’s change of residence, the Bank did nothing to perfect its interest in the boat in Florida during the entire six month period.
In October of 1978, Mr. Unger filed a voluntary petition in bankruptcy. His trustee, the plaintiff in this case, now claims title to the boat as against the Bank.
CONCLUSIONS OF LAW
Under Indiana law, the Bank’s interest in the motorboat at issue was perfected by the filing of a financing statement in the registry office. Burns Ind.Stat.Ann. Section 26-1-9-302. Indiana distinguishes between motor vehicles, and motorboats — as to the latter, it does not require as a condition of perfection the notation on the certificate of title of the security interest. See Burns, supra, Comments on Section 26-1-9-302(3)(b) at 491-92 (differentiating between the two, and stating that the former only are governed by a lien statute proceeding for central filing).
Florida on the contrary, is a certificate of title state that requires the notation on the certificate of title of the security interest in *226order for it to be perfected. Fla.Stat. Section 371.81 (1973). The question thus arises, what is the effect upon the Bank’s security interest when the collateral is moved from a “non-title” to a “title” state with the Bank’s knowledge but without any action on its part to preserve that interest.
The plaintiff trustee has asserted that its interest in the aforementioned boat is superior to that of the Bank in that the latter, by its failure to perfect its interest within the requisite amount of time, in Florida, is now merely an unsecured creditor. In doing so, the plaintiff relies on Fla.Stat. Section 679.9-103(3) (1966) which states:
. If the security interest was already perfected under the law of the jurisdiction where the property was when the security interest attached and before being brought into this state, the security interest continues perfected in this state for four months and also thereafter if within the four month period it is perfected in this state (emphasis added).
It is uncontroverted that the defendant bank has a validly perfected interest when originally entered, by filing, in the State of Indiana. Since the property was not covered by a certificate of title in that jurisdiction, Fla.Stat. Section 679.9-103(3) (1966) is controlling. See Comment 7 on Section 679.9-103.
The Court hereby holds that the aforesaid statute requires a creditor to take some affirmative action, in accordance with the law of this jurisdiction, to reperfect its interest in the collateral within the four month period. Thus, under Fla.Stat. Section 371.81 (1973), the creditor in order to insure that his security interest does not lapse through its inaction, has a duty to see that a certificate of title is applied for by the debtor or by the Bank itself. To hold otherwise would render negatory the effect of Section 679.9-103(3) which allows a limited period of grace to the creditor — four months, and four months only because:
. The four month period is long enough for a secured party to discover in most cases that the collateral has been removed and to file in this state; thereafter, if he has not done so, his interest, although originally perfected in the state where it attached, is subject to defect here by those persons who take priority over an unperfected security interest. See Comment 7, Section 679.9-103 at 172.
This is especially true in the instant case where the Bank knew for six months that the debtor has changed his residence, and made no attempt whatsoever to reperfect its interest in the collateral.
The Court thus concludes that when the debtor filed a voluntary petition in bankruptcy after the four month period of grace under Section 679.9-103 elapsed, the Bank’s security interest in the aforementioned collateral had expired. In accordance with Section 70(c) of the Bankruptcy Act, 11 U.S.C. Section 110(c) (1978), the debtor’s trustee in bankruptcy obtained the rights of a lien creditor, and had a superior claim to the motorboat that the defendant, who at that point in time, had a mere unperfected security interest. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488874/ | OPINION
WILLIAM LIPKIN, Bankruptcy Judge.
Central Piping Incorporated (Central), the above named Bankrupt, was adjudicated bankrupt on March 26,1979 following an Involuntary Petition filed against it on February 28, 1979. John S. Holston, Jr. was appointed Trustee.
The Trustee, on June 20, 1979, filed a Complaint directed to B. F. Goodrich Chemical Company; Jaybar Contracting, Inc.; The Bank of New Jersey; Cornell & Company, Inc.; J. D. Lawrence, Inc.; Heritage Painting, Inc.; Markim, Inc.; Leonard Jed Company and Briggs Rubber Products Company seeking the following judgment:
Payment of a sum in the amount of $29,-961.76 representing the balance due Central on a contract between Central and B. F. Goodrich dated March 2, 1977 for general mechanical work for paste stripping systems at the Goodrich plant in Pedricktown, New Jersey.
Releasing Goodrich of any and all liability to any of the above named defendants upon payment of that sum and discharging of *300record by the trustee of the contract filed by Central with the Clerk of Salem County upon payment by Goodrich and also cancel-ling and discharging of record all stop notices filed by any and all defendants, and finally fixing and determining the priorities, if any, among the defendants.
The Defendant named therein, John D. Lawrence, Inc., filed an answer and counterclaim to the Complaint wherein it denied that any sum is due The Bank of New Jersey, and claiming due it the sum of $1,912.75 as a trust fund, asserting thereby reclamation of said trust funds together with interest, costs and counsel fees, and the imposition of a constructive trust on funds held by Goodrich and reclamation of said funds.
In the interim, between the filing of the trustee’s complaint and Lawrence’s answer and counterclaim, Lawrence filed a complaint directed against the trustee and The Bank of New Jersey wherein it alleges due it the sum of $61,269.40, arising out of agreements with Central, whereby Lawrence provided labor, materials, equipment and supervision for improvements on various sites of property owned, leased or occupied by Texaco, Inc. for property at Route 130, Westville, New Jersey. The original amount was $114,877.50, toward which Central had paid $53,558.10.
Lawrence’s claim, stated briefly, against primarily The Bank of New Jersey, and against the Trustee is upon the theory that payment by Texaco to The Bank of New Jersey was of “trust funds” and that theory would apply as to funds due by Goodrich. Lawrence relies upon the provisions of N.J. S.A. 2A: 102-10 in support of its demand for payment.
The Bank of New Jersey is a creditor of Central in the sum of $196,998.37, which includes interest to November 9, 1978.
It was proven at the trial that on July 7, 1971 Central, then known as R. Cornell Co., Inc. executed a security agreement in favor of The Bank of New Jersey. The Security Agreement provided, “Borrower grants to Bank, as security for all Borrower’s liabilities to Bank, ... a security interest under the Uniform Code in: (a) All accounts owned by Borrower at the date of this Agreement; (b) All accounts at any time hereafter acquired by Borrower; (c) Such contract rights as borrower may from time to time specifically assign to Bank; and (d) All accessions and proceeds of such accounts receivable and/or contract rights, including the products of the same and returned and repossessed goods.” The Security Agreement was perfected by the filing of a Financing Statement on July 8,1971 in the Office of the Secretary of State. On January 24, 1975 The Bank of New Jersey filed a Financing Statement with the Secretary of State recording the fact that the name of R. Cornell Co., Inc. had been changed to Central Piping as of January 1, 1975. Then on June 15, 1976 The Bank of New Jersey filed a continuation of the Financing Statement which was thus within 5 years of the original filing and continued the validity of the original Financing Statement.
The facts are clear that Goodrich has in its possession the sum of $29,961.76, which it is willing to pay to creditors of Central in accordance with this court’s Order determining the rights of parties thereto.
Lawrence is not limiting its claim to funds associated with a particular job it participated in, but is cutting across all contracts of construction and seeks to deny to The Bank of New Jersey a right to any funds paid to it under the Security Agreement by Central, which funds had been received by Central from owners of property for which Central had contracted to do work. Lawrence casts The Bank of New Jersey in the role of a miscreant under the provisions of the New Jersey Statute 2A:102-10.
The Statute reads as follows:
2A: 102-10. Misappropriation of funds paid to contractor for building purposes
All moneys received by a contractor from the owner or mortgagee of real estate or any leasehold or other interest therein, for the purpose of having a building erected, constructed, completed, al*301tered, repaired or added to, are trust funds in the hands of the contractor to be applied to the amount of all claims due or to become due and owing from the contractor to all persons furnishing labor or materials to him for the erection, construction or completion of the building or any alteration, repair or addition thereto, and any other reasonable and necessary charge in connection therewith. Any contractor or any officer, director or agent of the contractor, who pays or consents to the appropriation of such funds for any other purpose prior to the payment of all claims and charges for the payment of which the funds constitute a trust fund, is guilty of a misdemeanor. Amended by L.1954, c. 123, p. 599, § 1, eff. July 1, 1954.
This Section is found in the Criminal Statutes of the State of New Jersey, and is directed, as set forth therein, against a contractor who receives money from an owner or mortgagee of real estate or any leasehold or other interest therein, which contractor while the funds are “in the hands of the hands of the contractor” are to be applied to the amount of all claims due or to become due and owing from the contractor to all persons furnishing labor or materials to him for the erection, etc., failing which application is guilty of a misdemeanor. (Emphasis added).1
The Bank of New Jersey over the years advanced money to Central upon accounts receivable up to 80% of the face amount thereof which advances enabled Central to operate its business and pay bills, presumably including bills to Lawrence. When Central collected upon the accounts receivable it deposited them in a bank account with The Bank of New Jersey, in accordance with its Security Agreement. The Bank of New Jersey could at any time apply the moneys in the special account to the indebtedness due The Bank of New Jersey.2 As stated before, at the time of the filing of the Petition in Bankruptcy Central was indebted to The Bank of New Jersey in the sum of $196,998.37.
The Bankruptcy Act, Section 70c, casts the Trustee of the Bankrupt Estate into the position of a judgment creditor holding a levy or lien, often described as the ideal judgment creditor. However, his rights are subject to the rights of superior lien creditors. The Trustee has recognized that the perfected Security Agreement of The Bank of New Jersey to the accounts receivable is superior to his right as a judgment creditor. However, the rights of the Trustee are superior to Lawrence’s claim to the funds under a “Trust Fund” theory.
There is no “Trust Fund” available to Lawrence. But for The Bank of New Jersey’s perfected lien on accounts receivable the Trustee would have the right to collect the account receivable from Goodrich and any other account payable debtor to the Bankrupt Estate.
This conclusion of law is clearly mandated by In re Matthews Associates, Inc., 394 F.2d 101 (3 Cir. 1968).
The Statute, as stated before, relied upon by Lawrence has only criminal implications. The Statute does not create a trust fund for creditors. As to the sum owed by Goodrich to the Trustee, as stated in Matthews, page 103,
It undertakes to prevent a [sub]3 contractor’s possible diversion of certain receipts *302to uses other than payment to material-men. It does not purport to cover outstanding and uncollected obligations owed to a [subcontractor. .
Here, the [subcontractor himself never collected the debt. Bankruptcy intervened before the event, the receipt of money, upon which the arising of any statutory duty depended. Thus, the appellant must contend that, although it was only a general creditor when its debtor became bankrupt, action thereafter by the trustee created a trust, or an equitable lien for its benefit.4 (Emphasis added)
Such a change of a creditor’s status and priority solely upon the basis of events after bankruptcy would be contrary to the basic theory and scheme of the Bankruptcy Act.
and the court further expounded upon the superior position of the trustee of the bankrupt estate to a creditor claiming a right to payment from “trust funds”, which is claimed herein by Lawrence. Lawrence is cast in the same mold as sought by the creditor in the Matthews case, wherein the court said:
It would be a self-contradictory travesty of the legal scheme of bankruptcy for such reduction of an unencumbered asset to possession for the benefit of all creditors to have the effect of converting the money thus received into a trust fund for a limited group of creditors. Page 103.
The court in Matthews, page 103, does not agree with the decision of the Second Circuit, which interprets the New Jersey Statute 2A: 102-10 or 11 as stated in Wickes Boiler Co. v. Godfrey Keeler Co., 116 F.2d 842 (2 Cir. 1940), modified on rehearing 1941, 121 F.2d 415. Matthews also points up that Carrier Corp. v. J. E. Schecter Corp., 2d Cir., 1965, 347 F.2d 153, cert. denied 382 U.S. 904, 86 S.Ct. 239, 15 L.Ed.2d 157, is distinguishable from the case at hand. Matthews, note 2, page 103, also cites Wasserman, Inc. v. Klahre, 1952, 24 N.J.Super. 143, 147-148, 93 A.2d 628, 631 and Plevy v. Schaedel, 1957, 44 N.J.Super. 450, 130 A.2d 910, and the unreported case of Minnesota Mining & Mfg. Co. v. John E. Joyce, Inc., No. C-2709-61, Super.Ct., Ch. Div. Monmouth County, January 25, 1963, “where the trial courts held flatly that this criminal statute gives rise to no civil remedy.”
Just as was stated in Matthews, page 104, concerning creditors who supplied materials, so must I find, “ . . . the material men were only general creditors of the [subcontractor at the time of bankruptcy.”
The case of Doyle v. Northrop Corp., 455 F.Supp. 1318 (D.N.J.1978) relates primarily to the interpretation of a contract or contracts, and application of the parol evidence rules, between parties not concerned with the bankruptcy law. The decision does recite that N.J.S.A. 2A: 102-10 and 11 automatically become a part of the agreements, but to be noted is the fact that no contest was made by the alleged secured creditor (defendant), to the rights of labormen and materialmen as superior to the rights of the secured creditor. Furthermore, the secured creditor pointed to the fact that there was no money due such persons other than the testimony of the other party that there was currently due some $10,461.34, and the secured creditor further raised the fact that it was not shown that the plaintiffs had or will have any difficulty in paying the amounts due if the security agreement is found valid and the defendant was allowed to foreclose on the collateral. The court thereupon said, “ . . . the plaintiffs’ claim in this regard is ineffective.” It is clear, therefore, that the recital in the opinion as to the effect of 2A:102-10 and 11 was at best obiter and not necessary for determination of the matter before the court. On the trial of the specific issue so referred to, the decision of Matthews and cases cited herein are controlling.
I must, therefore, find that Lawrence cannot recover its debt under the provisions *303of 2A:102-10 and 11, which is a criminal statute.5
Not only where a statute is enacted to correct or guard against improper conduct, which carries with it criminal sanctions, as stated in In re Matthews Associates, Inc., supra, but also where statutes provide for sanctions by civil actions, such as restraints by regulatory bodies, unless the statute specifically provides therein for a private cause of action by the individual, then such an action must fail.
In a recent case of the Supreme Court, Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979), the Court addressed the issue of private cause of action in regard to a suit under the Investment Advisors Act of 1940:
The question whether a statute creates a cause of action, either expressly or by implication, is basically a matter of statutory construction. . . . While some opinions of the Court have placed considerable emphasis upon the desirability of implying private rights of action in order to provide remedies thought to effectuate the purposes of a given statute, . what must ultimately be determined is whether Congress intended to create the private remedy asserted . 444 U.S. 11, at 15,100 S.Ct. 242, at 245, 62 L.Ed.2d 146.
Continuing, 444 U.S. page 24, 100 S.Ct. page 249, the court held:
Section 206 of the Act here involved concededly was intended to protect the victims of the fraudulent practices it prohibited. But the mere fact that the statute was designed to protect advisers’ clients does not require the implication of a private cause of action for damages on their behalf. .
In an earlier case, the Supreme Court in Cort v. Ash, 422 U.S. 66, 80, 95 S.Ct. 2080, 2089, 45 L.Ed.2d 26 (1975), dealing with an action for damages by a stockholder against corporate directors who violated a criminal statute prohibiting corporations from making a contribution in connection with elections, the court stated,
Clearly, provision of a criminal penalty does not necessarily, preclude implication of a private cause of action for damages . . Here, there was nothing more than a bare criminal statute, with absolutely no indication that civil enforcement of any kind was available to anyone.6
The New Jersey Statute under which Lawrence now claims a right of action is purely a criminal statute without individual civil remedies therein. See also Houdaille Constr. Materials v. A. T. T., 166 N.J.Super. 172, 399 A.2d 324 (1979), which failed to find the arguments raised in Carrier Corp. v. J. E. Schecter Corp., supra, persuasive and followed Plevy v. Schaedei, supra. Houdaille, at 188, 399 A.2d at 332, stated, “[t]he statute imposes criminal penalty and must be strictly construed”.
Before terminating this aspect of Lawrence’s claim to the funds under 2A:102-10, *304it is of interest to note that the New Jersey Legislature has heretofore enacted legislation dealing with contracts for public improvements, specifically creating a “trust fund” as to moneys paid by the “State of New Jersey or by any agency, commission or department or by any county, municipality or school district in the state . shall constitute a trust fund in the hands of such person as such contractor . . . .” 2A:44-148. Without passing upon the effectiveness of that Section should it come into play during the administration of a bankruptcy estate, suffice it to say for the present that the legislature has specifically provided, through a civil statute, for payment of funds by contractors arising out of public contracts. It has not enacted a similar section for nonpublic contracts.
Addressing now the judgment sought by Lawrence to compel The Bank of New Jersey to pay back to the trustee all moneys it has been paid under the accounts receivable financing agreement, as stated above, the trustee has recognized the validity of the lien in favor of The Bank of New Jersey. It was properly recorded and the consideration called for under the agreement was advanced by The Bank of New Jersey to Central over the years. During that period of time The Bank of New Jersey was a secured creditor holding a lien on all accounts receivable and was paid by Central from the accounts receivable. Even if, which is not the fact as opined above, The Bank received funds which had been labeled “trust funds”, the character of “trust funds” would have been lost and The Bank could retain the funds. This determination, involving “trust funds” under the statute dealing with public contracts set forth above, may be found in American Lumberman’s Mutual Casualty Company of Illinois v. Bradley Construction Co., 129 N.J.Eq. 278, 19 A.2d 242, 243 (E & A 1941) affirming 127 N.J.Eq. 500, 13 A.2d 783 (Ch. 1940). The court therein stated:
The plain meaning of R.S. 2:60-212 is that money in the hands of a contractor for public work done for the state or any of its subsidiaries is impressed with a trust for the benefit of unpaid laborers and materialmen while such fund remains in its hands. (Emphasis added).
Thus, even when the claim to funds by a supplier against The Bank rested on a civil statute creating a trust fund the claimant could not succeed against The Bank, which had received the proceeds of the trust payments to the contractor. It is more evident that a supplier claimant as in this case cannot succeed when it does not have the benefit of such a statute creating a trust fund apart from the criminal sanctions set forth therein.
Pearlman v. Reliance Insurance Company, 371 U.S. 132, 83 S.Ct. 232, 9 L.Ed.2d 190 (1962), cited by Lawrence in its brief, is not pertinent to the issue now before this court. That case recognized the right of the insurance company, which was obliged to make payment on a completion and performance bond to suppliers and laborers, to subrogation of payment from the owner as against the trustee of the bankrupt estate. The rights of the parties were fixed in the Bond when the Bond was executed.
Nor can Lawrence advance its position over The Bank of New Jersey upon the theory that The Bank was responsible to the suppliers and materialmen. The Bank made advances to Central, which enabled it to do its work. It filed a Financing Statement to protect its lien against accounts receivable which were, partially at least, generated by its advances to Central. That perfected security interest of The Bank may be likened to a construction mortgage. The Bank was not obliged to see to the use of the advances by it to Central. The same theory of liability by The Bank now advanced by Lawrence was resolved in the negative in the case of First National State Bank of New Jersey v. Carlyle House Inc., 102 N.J.Super. 300, 246 A.2d 22 (Ch.Div. 1968), wherein the court held the bank had no duty to subcontractors. Therein the court stated, page 322, 246 A.2d at 34:
Assuming the availability of a civil remedy in order to implicate the bank in the alleged breach of trust, there must be proof of the bank’s knowing participation *305in the same. Judson v. Peoples Bank and Trust Co., 25 N.J. 17, 29, 134 A.2d 761 (1957). There is none.
The plaintiff, Lawrence, could have protected itself when furnishing materials and labor on the contracts between Central and the owners. The New Jersey Statute, 2A:44-64, sequi, titled Liens — Mechanics, Materialmen and Laborers in General, has complete and ample provisions wherein such creditors may guard against other liens. Merely to mention a few of such sections, see: — Notices of Intention, 2A:44-71; liability where contract filed, filing in lieu of notice of intention, 2A:44-75; filing of stop notices, 2A:44-77; observance of conditions for priority of recorded mortgages over liens, 2A:44-87 and 89. The Bank’s lien was of record for suppliers or laborers to know of before advancing material or labor, and they could have perfected their own lien in accordance with the State Statutes. They failed to do so and their claim of a lien is therefore invalid as against the Trustee, In re Matthews Associates, Inc., supra, and as against a creditor with a perfected security agreement. N.J.S.A. 12A:9-103, 12A:9-302 and 12A:9-313.
For the foregoing findings of fact and conclusions of law an Order shall be entered dismissing the Complaint of Lawrence seeking payment from the funds in the hands of the Trustee and/or Goodrich, and payment by The Bank of New Jersey of moneys heretofore paid it by Central, and an Order shall be entered that the lien of The Bank of New Jersey shall attach to the funds in the hands of Goodrich toward satisfaction of its debt secured by the assignment of accounts receivable, as set forth herein.
. The same provisions apply to moneys received by a subcontractor from the owner or mortgagee for payment to persons furnishing labor or materials to the subcontractor. 2A:102-11.
. Security Agreement between The Bank of New Jersey and R. Cornell Co. Inc. (Now known as Central Piping Incorporated)
Par. 11. Bank shall have the right at any time and from time to time, without notice, to:
(a) apply any part or all of the moneys in the “Special Account” (Cash Collateral Account) representing collected items against any liability of Borrower to Bank, and Bank shall upon request by Borrower make such application against such liability or liabilities as Bank may itself select:
.[ ] is inserted around sub connoting similarity to the provisions of 2A:102-10 and 2A:102-11.
. As to equitable liens see Bankruptcy Act, Section 60a(6), “The recognition of equitable liens where available means of perfecting legal liens have not been employed is hereby declared to be contrary to the policy of this section.”
. Of interest is the repeal of 2A:102-10 and 11 by the enactment of Chapter 95, Laws 1978, (2C:98-2), effective September 1, 1979, entitled, The New Jersey Code of Criminal Justice, and in its place enacted under the Criminal Code 2C:20-9. The Code provision can be described as a shotgun approach to the situation where a person obtains or retains property upon agreement or subject to a known legal obligation to make a specified payment or other disposition thereof. This section is not limited to contractors or subcontractors who obtain money and states that the one who violates the section is “guilty of theft”. Nowhere, even in the new section, does it create a trust fund for civil purposes.
. See also Gold Fuel Service, Inc. v. Esso Standard Oil Co., 59 N.J.Super. 6, 18, 157 A.2d 30 (1959) (affirmed 32 N.J. 459, 161 A.2d 246, cert. denied 364 U.S. 882, 81 S.Ct. 170, 5 L.Ed.2d 103), wherein the court stated:
“ . . it should be noted that merely because certain acts are required or prohibited by a statute, a cause of action does not arise because of violation of the statute. As was said in Osback v. Tp. of Lyndhurst, 7 N.J. 371, 376, 81 A.2d 721 (1951); where the Legislature passes a statute directing that, as a matter of public policy, certain acts be performed, but fails to provide a penalty for nonperformance or a remedy for those who may suffer through failure of such performance, it does not give rise to a cause of action.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488875/ | MEMORANDUM OPINION REGARDING CLAIM OF HOMESTEAD
JAMES W. MEYERS, Bankruptcy Judge.
I
This matter involves a dispute over whether certain proceeds from the sale of a house are subject to a purported homestead asserted by the bankrupt herein, Ms. Sally A. Ehmke (“bankrupt”). The trustee, Ralph 0. Boldt has objected to the bankrupt’s claim of the homestead, and has been joined in this regard by Mr. Willie R. Carroll, who claims to be a judgment creditor of the bankrupt.
After receiving memoranda on the legal issues confronting the Court, and, after hearing testimony on the factual background of this controversy, the Court has concluded that the bankrupt perfected a valid homestead which now covers the proceeds from the sale of the homestead property. Accordingly, the proceeds are exempt from administration as part of the bankrupt’s estate and are shielded from the claim asserted by Carroll.
*333II
FACTS
On January 1, 1979, Carroll instituted a civil action against the bankrupt in state court seeking to have a constructive trust imposed upon certain realty then owned by the bankrupt. Five days later, on January 10, 1979, an Interlocutory Judgment of Dissolution of Marriage was entered in state court in an action for the dissolution of the Ehmke marriage previously commenced by Mr. Ehmke.
On January 15, 1979, Carroll filed a notice of pending action, or lis pendens, in connection with his state court action against the bankrupt. Thereafter, on January 23,1979, the bankrupt recorded a declaration of homestead covering the residence involved in the suit brought by Carroll. In her declaration of homestead, the bankrupt claimed a homestead as an unmarried head of a family consisting of herself and her daughter, Tamara, who had been residing with the bankrupt, with her father’s consent, since October of 1978.
In the course of Carroll’s state court action, the parties reached an accord on May 11, 1979, whereby the lis pendens was to be removed. It was further stipulated to by all that the net proceeds derived from the contemplated sale of the bankrupt’s residence would be placed in a trust account pending the outcome of the trial.
On August 8, 1979, Carroll’s suit against the bankrupt was concluded and the trial court orally rendered a judgment in favor of Carroll in the amount of $15,000 plus interest and costs of suit. This prompted the bankrupt to file her petition with this Court on August 30, 1979.
In the bankrupt’s petition she claimed as exempt property, inter alia, the proceeds from the sale of her homestead residence. She initially grounded her homestead claim on former Section 690.235(e) of the Code of Civil Procedure. See Cal.Civ.Proc.Code § 690.235(e) (West) (repealed). The bankrupt later amended her claim of exempt property to include Section 690.31 of the Code of Civil Procedure as well as Sections 1260.3, 1261 and 1265 of the Civil Code. See Cal.Civ.Proc.Code § 690.31 (West) (dwelling house exemption); Cal.Civ.Code §§ 1260, subd. 3, 1261, 1265 (West) (homestead).1 The trustee, however, did not agree and refused in his Report of Exempt Property to recognize that the bankrupt had perfected any homestead rights. In turn, the bankrupt filed a timely objection to the trustee’s Report of Exempt Property.
Thereafter, on October 24, 1979, Carroll, in an attempt to collect on his state court judgment, filed his original complaint to obtain relief from the automatic stays afforded the bankrupt by the Bankruptcy Rules of Procedure. See Bankruptcy Rules 401, 601.2 In doing so, Carroll has essentially aligned himself with the trustee in seeking to deny the availability of any homestead to the bankrupt.
Ill
DISCUSSION
A. THE BANKRUPT’S DECLARATION OF HOMESTEAD
The trustee bases his refusal to acknowledge the bankrupt’s homestead exemption on his claim that the bankrupt filed an “incorrect” declaration of homestead by stating that she was both “unmarried” and the “head of a family”.
*334The bankrupt, on the other hand, contends that she was “unmarried” at the time she executed her homestead declaration. In support of this assertion, she relies on the theory that a spouse who attempts to perfect a homestead while subject to an interlocutory judgment of dissolution is considered to be a “single person” for homestead purposes. See e. g., McGaffey v. Sudowitz, 189 Cal.App.2d 215, 218-22, 10 Cal. Rptr. 862 (1961).
The bankrupt also points out that she was in fact the “head of a family” within the meaning of Section 1261 of the Civil Code at the time her declaration was filed. This is so, she claims, because her daughter Tamara then resided with her under her care and maintenance. In this regard, Section 1261 of the Civil Code provides in part that: “[t]he phrase ‘head of a family’, as used in this title, includes within its meaning . Every person who has residing on the premises with him or .her, and under his or her care or maintenance, either: (a) His or her minor child . . . .” Cal.Civ.Code § 1261, subd. 2 (West).
In further opposition to the bankrupt, Carroll adopts the trustee's theme by first arguing that the bankrupt “falsely” stated she was unmarried when she filed her declaration. This conclusion, it is urged, is supported by the terms of the Interlocutory Judgment of Dissolution entered against the bankrupt in state court. .
Secondly, Carroll asserts that the bankrupt was also not the “head of a family” within the meaning of Section 1261 of the Civil Code. Here, Carroll again relies on the terms of the Interlocutory Judgment of Dissolution which awards custody of the Ehmke children to Mr. Ehmke. These alleged misrepresentations, Carroll concludes, render the bankrupt’s claimed homestead invalid. See Shumaker v. Biscailuz, 130 Cal.App.2d 414, 415, 278 P.2d 939 (1955).
Both Carroll and the trustee are in error. With regard to the bankrupt’s marital status at the time of her homestead declaration, it is clear that she was regarded as a single person for homestead purposes under California law. This is so even though she was party to a dissolution action in which an interlocutory judgment of dissolution had been entered. See McGaffey, supra, 189 Cal.App.2d at p. 218-22, 10 Cal. Rptr. 862; Harley v. Whitmore, 242 Cal. App.2d 461, 468, 51 Cal.Rptr. 468 (1966). Thus Carroll relies too heavily on the wording of the Interlocutory Judgment of Dissolution. This document does indeed contain language cautioning the parties that they are “still married”. It does so, however, merely in the context of admonishing the parties not to remarry until a final judgment of dissolution is entered. See generally 6 B. Witkin, Summary of California Law, “Husband Wife” § 111 (8th ed.) (remarriage prior to final judgment is bigamous and void).
Secondly, the bankrupt’s oral testimony confirms her claim that she was the “head of a family” as defined by Section 1261 of the Civil Code at the time she executed and recorded her declaration of homestead. At that time, her daughter Tamara resided with her under her care, and had in fact been residing with her for sometime with Mr. Ehmke’s consent. The wording of the Interlocutory Judgment of Dissolution does not change this fact. It is true that the Judgment does award “care, custody and control” of the Ehmke children to Mr. Ehmke. But is equally clear to this Court that the actual care of Tamara at all relevant times was undertaken by the bankrupt and not Mr. Ehmke, and he had in fact agreed to that. Owing to this, the Court has concluded that the bankrupt’s relationship with her daughter when she filed her declaration of homestead brings her within the contours of the phrase “head of a family” as defined by California law. See Cal. Civ.Code § 1261, subd. 2(a) (West).
B. THE APPLICATION OF SECTIONS 1300-04 OF THE CALIFORNIA CIVIL CODE
Carroll has raised the additional question of whether the bankrupt chose the proper statutory method of perfecting her home*335stead.3 He argues that Sections 1300-04 of the Civil Code provided the exclusive means of creating a homestead in the bankrupt’s former residence. This is so, Carroll suggests, because the bankrupt was then subject to the Interlocutory Judgment of Dissolution when her declaration of homestead was recorded.
In reaching this conclusion Carroll relies on that portion of the Civil Code entitled “Married Person’s Separate Homestead”. See Cal.Civ.Code §§ 1300 et seq. (West). In particular Section 1300 provides:
Following the entry of a * * * judgment decreeing legal separation of the parties or an interlocutory * * * judgment of dissolution of a marriage, each spouse may execute and acknowledge in the same manner as a grant of real property is acknowledged, a declaration of a married person’s separate homestead from the separate property of the spouse so declaring same, or from any property awarded to such spouse by said * * * judgment.
Cal.Civ.Code § 1300 (West).
Great importance is also placed by Carroll and the trustee on the case of Wiltrakis v. Wiltrakis, 244 Cal.App.2d 257, 53 Cal.Rptr. 97 (1966). This case, it is said, makes Sections 1300-04 of the Civil Code mandatory where a person attempts to create a homestead after they have become subject to an interlocutory judgment of dissolution.
The bankrupt disagrees with these contentions having already placed reliance on the provisions of Section 1260 of the Civil Code. On these issues the Court is again in agreement with the bankrupt. While the above argument of Carroll and the trustee is not without some force, the Court does not find it persuasive.
First of all, Wiltrakis does not go as far as Carroll and the trustee suggest. It does not make Sections 1300-04 of the Civil Code mandatory in the case of a person who wishes to create a homestead after the entry of an interlocutory judgment of dissolution. The case merely defines the scope of that property from which such a homestead can be selected. That is, that spouse’s separate property or property awarded in a property settlement agreement or by court decree. See Wiltrakis, supra, 244 Cal.App.2d at p. 258, 53 Cal.Rptr. 97. Here, however, there has been no claim that the property in which the bankrupt chose to perfect her homestead was improperly selected. See Wiltrakis, supra, 244 Cal.App.2d at p. 257-58, 53 Cal.Rptr. 97. Owing to this, the holding in Wiltrakis has little application here.
Secondly, the wording of Sections 1300-04 of the Civil Code does not support the contention advanced by Carroll and the trustee. These sections do not purport to create an exclusive means of perfecting a homestead for every person subject to an interlocutory judgment of dissolution, although they may present a preferred way of doing so. It is still possible for such an individual to create a valid homestead under Section 1263 of the Civil Code without reference to Sections 1300-04 of the Civil Code or violation of the rule set down in Wiltrakis. See Cal.Civ.Code §§ 1260-61, 1262-65a (West).
C. THE LIEN ASSERTED BY CARROLL
Carroll finally contends that by reason of the May 11, 1979, stipulation regarding the lis pendens, he has a consensual lien upon the proceeds from the sale of the bankrupt’s homestead residence. Both the trustee and the bankrupt reject this contention, and the Court has concluded that they are correct in doing so.
With respect to the negotiations regarding removal of the lis pendens and the placement of the sales proceeds in a trust account, counsel for the bankrupt has testified that no lien was granted by that agreement. The Court concurs with this view, as the stipulation relied upon simply allowed *336the proceeds from the sale of the homestead to be placed in a trust account pending the outcome of the litigation.
Regarding the lis pendens itself, it is clear that its mere filing created no lien of any sort on the homestead property. See generally Cal.Civ.Proc.Code § 409 (West); Contini v. Western Title Ins. Co., 40 Cal. App.3d 536, 542, 115 Cal.Rptr. 257 (1974) (purpose and effect is to give notice of action). Moreover, the simple fact that Carroll’s lis pendens was recorded prior to the bankrupt’s homestead does not give Carroll any superior rights as against the bankrupt. See Putnam Sand & Gravel Co. v. Albers, 14 Cal.App.3d 722, 725, 92 Cal.Rptr. 636 (1971).
D. THE CONTINUING EXEMPTION OF THE HOMESTEAD PROCEEDS
The bankrupt states that the proceeds from the sale of her homestead property are exempt for a period of six months after the sale of the property, which occurred on June 8, 1979. As authority for this conclusion the bankrupt cites Section 1265 of the Civil Code, which reads in part:
should the homestead be sold by the owner, the proceeds arising from such sale to the extent of the value allowed for a homestead exemption as provided in this title shall be exempt to the owner of the homestead for a period of six months next following such sale.
Cal.Civ.Code § 1265 (West).
Relying on this section, the bankrupt reasons that the six month protection of proceeds afforded by Section 1265 commences upon the sale of the homestead property, and runs without interruption from that date. This is incorrect. As was recently pointed out in Matter of Widdershoven, 452 F.Supp. 503 (N.Cal.1978):
Accordingly, the statutory period of exemption must be deemed to have been tolled from the filing of the petition until a determination of the exemption claim at which time the bankrupt regains control of the property. To the extent the proceeds of sale have not been reinvested in homestead or other exempt property at the end of the full period of exemption, excluding the time during which it is tolled, they revert to the trustee’s control and become subject to the claims of creditors.
Widdershoven, supra, 452 F.Supp. at p. 505 (emphasis added).
Thus, protection under Section 1265 of the Civil Code commenced in this case on June 8, 1979, the date the homestead property was sold, and continued until August 30, 1979, the date the bankrupt filed her petition with this Court. From that time, until the filing of this decision, the running of the sixth month time period under Section 1265 was tolled. Therefore, the bankrupt has approximately four months of protection under Section 1265 remaining.
IV
CONCLUSION
In light of the foregoing, the Court has determined that the bankrupt properly created a homestead in her residence which attached to the proceeds derived from its sale. The bankrupt’s declaration of homestead contained no false recitals, nor was she obligated to perfect her homestead in accord with Sections 1300-04 of the Civil Code.
Accordingly, the proceeds in question are not subject to administration as part of the bankrupt’s estate. Nor are they available to satisfy the claim asserted by Carroll for that period of time specified in Section 1265 of the Civil Code and related caselaw.4
This opinion shall constitute findings of fact and conclusions of law as required by Bankruptcy Rule 752.
. The bankrupt framed her declaration of homestead as if she were an “unmarried head of a family”. In her amended petition, however, she claims to have selected a homestead for a person other than the head of a family. See Cal.Civ.Code § 1260, subd. 3 (West). This discrepancy is not controlling though, as her declaration of homestead would be sufficient to perfect either type, and the amount of the homestead claimed is not in issue. Compare Cal.Civ.Code § 1263 (West) with Cal.Civ.Code § 1267 (West). The Court would also note that the parties have not addressed the applicability of Section 690.31 of the Code of Civil Procedure to this case. It would appear, however, to be inapplicable here. See Cal.Civ.Proc.Code § 690.31(b)(1) (West).
. Carroll later filed an amended complaint for the same purpose on November 30, 1979, the changes in which are insubstantial.
. In his original Report of Exempt Property the trustee did not challenge the statutory basis for the bankrupt’s claimed homestead. He contended only that the bankrupt’s declaration was factually incorrect. Now he joins with Carroll in this argument.
. See Cal.Civ.Code §§ 1240, 1265 (West); Matter of Widdershoven, supra, 452 F.Supp. 503. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488836/ | ORDER ON TRUSTEE’S OBJECTION TO CLAIMED EXEMPTIONS
THOMAS C. BRITTON, Bankruptcy Judge.
The trustee has objected to the debtor’s claimed exemptions. (C.P. No. 7) The matter was heard on December 19, 1979.
The question presented here is whether the debtor is entitled to claim a personal property exemption up to the amount of $1,000 as provided in § 4, Art. X of the Florida Constitution. That exemption is allowed only to the “head of a family”. The debtor is a widow whose husband died ten years ago and who presently lives alone and provides support only for herself.
Section 222.19(2), Florida Statutes, specifically provides that the surviving spouse has the status of a head of the family as provided in the Florida Constitution provision noted above and that:
“The acquisition of this status shall inure to the surviving spouse irrespective of the fact that there are not two persons living together as one family under the direction of one of them who is recognized as the head of the family.”
There is no limitation as to the time that the surviving spouse shall continue to have this legal benefit.
It follows that Mrs. Hochman is entitled to the exemption claimed by her in this case and the trustee's objection is overruled. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488837/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION DETERMINING DISCHARGE-ABILITY
ALEXANDER L. PASKAY, Bankruptcy Judge.
THE MATTER under consideration is the dischargeability of a debt admittedly due *106and owing by John I. Sutmire, the bankrupt in the above-styled proceeding, to Winter Park National Bank, the plaintiff who instituted this adversary proceeding pursuant to Sec. 17c of the Bankruptcy Act. The claim of non-dischargeability is based on the contention that the obligation is a liability created by a materially false financial statement allegedly submitted by the bankrupt with the intent to induce the plaintiff to grant a loan and that the plaintiff in reliance thereon granted the loan. The action was originally brought against John I. Sut-mire and his wife, Betty M. Sutmire, however, the complaint as it relates to Betty M. Sutmire was dismissed.
The pertinent facts as they appear from the record and as presented at the final evidentiary hearing, can be briefly summarized as follows:
On March 15, 1977, the bankrupt and his wife furnished the plaintiff with their personal financial statement for the purpose of obtaining a loan and on April 26, 1977, and May 20, 1977, the bankrupt and his wife obtained two personal loans from the plaintiff. These personal loans have been satisfied and are not the subject of this controversy. However, subsequent to the granting of the two personal loans, a corporation known as Cardinal Exterior Cleaning Co., Inc., of which the bankrupt was both president and principal stockholder, obtained a loan from the plaintiff on June 14, 1977 in the amount of $13,740.48. This loan was secured by certain physical assets of the corporation and was personally guaranteed by the bankrupt. It is the debt incurred by virtue of the personal guarantee of this loan that the plaintiff seeks to be declared non-dischargeable. The principal dispute in this matter is whether the personal financial statement was given to the plaintiff solely for the purpose of the personal loans or for the purpose of the subsequently granted corporate loan as well. An officer of the plaintiff testified that the financial statement was submitted for the purpose of the corporate loan, that the plaintiff always required personal guarantees when lending money to small, closely held corporations and that the plaintiff required personal financial statements in connection with personal guarantees on corporate loans. However, the bankrupt testified that the financial statement was given to the plaintiff only in connection with the personal loans and that he was never informed of the requirement of a personal guaranty until the day the corporate loan was actually closed.
It should also be noted that the financial statement submitted into evidence by the plaintiff was made out to the Flagship Bank of Orlando rather than the plaintiff. The bankrupt, however, submitted a financial statement which was made out to the plaintiff. An officer of the plaintiff testified that one of the plaintiff’s secretaries copied the bankrupt’s Flagship Bank statement onto a form of the plaintiff’s.
The plaintiff’s claim of non-dischargeability is based on Sec. 17a(2) of the Bankruptcy Act which provides in pertinent part as follows:
“A discharge in bankruptcy shall release a bankrupt from all of his provable debts except such as (2) are liabilities . . . for obtaining money ... on credit .... in release upon a materially false statement in writing respecting his financial condition made . . . with intent to deceive . . . .”
In order to obtain a declaration of non-dischargeability under Sec. 17a(2), the burden is on the plaintiff to establish that (1) the bankrupt made the representations; (2) that at the time he knew they were false; (3) that he made them with the intention and purpose of deceiving the creditor; (4) that the creditor relied on such representations, and (5) that the creditor sustained the alleged loss and damage as a result of the representation having been made.
The crucial elements in this instance are whether the bankrupt submitted the statement with the requisite fraudulent intent and whether the plaintiff relied on the financial statement in granting the corporate loan.
*107Considering the element of reliance, it must be noted that the loan was secured by assets of the corporation. The record further reveals that the plaintiff relied to a great degree upon the cash flow of the corporation, the reputation of the bankrupt and the fact that one of the directors knew the bankrupt personally. While under certain circumstances partial reliance upon a financial statement is sufficient to render a debt non-dischargeable under Sec. 17a(2) of the Bankruptcy Act; see In re Sewell. 361 F.Supp. 516 (S.D.Ga.1973), such reliance must, nevertheless, be meaningful. In light of the fact that the loan was secured and that an officer of the plaintiff testified that he “primarily relied” upon the bankrupt’s reputation and the corporation’s cash flow, any meaningful reliance by the plaintiff on the bankrupt’s personal financial statement is, at best, questionable. Therefore, this Court is satisfied that the plaintiff has failed to meet its burden of proof on the issue of reliance.
In considering the element of fraudulent intent, it should be pointed out that in order to bar a discharge of a particular debt under Sec. 17a(2) of the Bankruptcy Act, the objecting party must prove actual or positive fraud, not merely fraud implied by law and must carry the burden of proving actual positive fraud. Brown v. Buchanam, 419 F.Supp. 199 (D.C.Va.1975); In re Dolnick, 374 F.Supp. 84 (D.C.Ill.1974); U. S. v. Syros, 254 F.Supp. 195 (E.D.Mo.1976); In re Taylor, 514 F.2d 1370 (9th Cir. 1975).
. Applying these principles to the controversy under consideration, it is evident that the proof presented by the plaintiff in support of its claim of non-dischargeability falls short of the requisite degree of proof and lacks the necessary persuasiveness to establish the requisite fraudulent intent. The bankrupt testified that his financial statement was given to the plaintiff only for the purpose of the personal loan and not for the corporate loans. Such facts are, of course, totally inconsistent with a finding of fraudulent intent in relation to the corporate loan. However, the bankrupt’s testimony was contradicted by the plaintiff’s witness. Therefore, viewing the record in the entirety, it is apparent that this record is equally consistent with the conclusion that there was an intentional fraud and that the transaction was totally devoid of any intentional fraud. Thus, since the evidence is in equilibrium, the plaintiff has failed to carry the burden of proof as to the existence of any specific and actual intent to deceive on the part of the bankrupt.
The plaintiff having failed to establish any meaningful reliance on the financial statement by the plaintiff and any fraudulent intent on the part of the bankrupt, the debt under consideration must be declared to be dischargeable.
A separate final judgment will be entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488838/ | FINDINGS AND CONCLUSIONS
THOMAS C. BRITTON, Bankruptcy Judge.
In this adversary proceeding, the plaintiff bank seeks modification of the automatic *121stay imposed by B.R. 13-401 in order that it may proceed in a State court mortgage foreclosure action that was pending when this Chapter XIII petition was filed on September 12, 1979. (C.P. No. 1) The trustee has answered. (C.P. No. 6) The debtors have filed a motion to quash service (C.P. No. 7) and a motion for continuance. (C.P. No. 8) The matter was heard on December 20, 1979, the day scheduled for the trial of this complaint. This order is a memorandum of decision under B.R. 752(a).
It is undisputed that the debtors were served promptly and properly. B.R. 704(c)(9) requires that when a bankrupt or debtor who is represented by counsel is served by mail, a copy of the complaint and summons shall also be mailed to counsel. This was done in this instance, but counsel never got the letter. He first heard of this proceeding on December 6. I find that no material prejudice to any substantial rights of the debtors has resulted from this partial failure in service and that service was effective to the extent required by B.R. 704(h). The motion to quash is denied.
There is only one issue presented in this proceeding, whether the mortgage lender should be compelled to reinstate a defaulted and accelerated mortgage on the debtors’ home. The debtors and their attorney were aware of this issue when they filed this bankruptcy three and a half months ago and discussed it with me at the preliminary conference which followed filing and again at the hearing of October 10, 1979 on the debtors’ motion to enforce the automatic stay against this plaintiff’s attorney. Debtors’ counsel had briefed the point then. It was his conclusion on this point that led to the filing of this Chapter XIII petition. I am convinced that there is no reason other than delay for a continuance of this hearing. Plaintiff’s complaint is granted precedence over all other matters by B.R. 13-401(d). The motion for continuance is denied.
The allegations of the complaint are admitted by the debtors, except the ultimate conclusion alleged in paragraph five, which is deemed denied by the debtors.
The pertinent undisputed facts are that the plaintiff has a first mortgage lien on the debtors’ home for $31,000 which became in default and was accelerated in accordance with its terms. A foreclosure proceeding prompted this bankruptcy. Debtors were then in arrears eight months on monthly payments of $293. A final decree of foreclosure, entered after bankruptcy, was vacated by the State court on plaintiff’s application because of the bankruptcy and the requirements of B.R. 13-401. The debtors’ plan, which was confirmed on October 24, 1979, does not purport to affect plaintiff’s claim. The plan provides:
“The following secured creditor shall be paid outside the plan: Bloomfield Savings Bank assignee from Landmark First National Bank — 1st Mortgage on residence — on all present and future payments due and owing.”
Plaintiff has not agreed to reinstate its mortgage and has no present interest in doing so.
The debtors ask me, in effect, to compel the plaintiff to reinstate their mortgage upon their promise to pay in about six months all sums past due and to resume the stipulated monthly payments.
It is clear that there is no authority under Chapter XIII to include a debt secured by real property in the debtor’s plan and thereby reduce the obligation. Section 606(1) of the Act (11 U.S.C. § 1006, 1007); 10 Collier on Bankruptcy (14th ed.) ¶¶ 22.02, 28.03. It is also clear that this court has the discretion to enjoin a secured creditor from foreclosing its lien during the pendency of a Chapter XIII case, including the life of the plan. Hallenbeck v. Penn Mutual Life Insurance Co., 4 Cir., 323 F.2d 566; Matter of Delaney, 5 Cir. 1976, 534 F.2d 645. Since the adoption in 1973 of the Bankruptcy Rules, the injunction is automatic under B.R. 13-401, but the burden is on the debtor to show he is entitled to a continuation of the stay, therefore, the legal principles remain unchanged.
Of course, the use of the court’s injunc-tive power could coerce a mortgagee into *122acceptance of less than his mortgage agreement stipulates, but no court should use this indirect means of circumventing the explicit statutory restriction on the court’s injunc-tive power. Therefore, the injunctive discretion is properly exercised only:
“. . . where the debtor has an equity in the property or it is necessary to his performance under the plan, the creditor’s security is not impaired by the stay, and the stay is conditioned [up]on appropriate provision for curing defaults and maintaining payments on the secured claim.” Advisory Committee’s Note, B.R. 13-401.
The evidence before me does not meet this test. The debtors now owe over $3,200 in defaulted payments together with undetermined amounts for late charges and interest as well as attorney’s fees and costs on the foreclosure. The mortgage calls for monthly payments of $293. The debtors have no means of curing the default and maintaining payments other than their incomes which total $1,015 a month against expenses of $729, which leaves a net income (without any provision for emergencies or incidentals) of $286. I find, therefore, that there is no way for these debtors to make appropriate provision for curing defaults and maintaining payments on this secured claim.
The debtors’ schedules value the house at $35,000 against a mortgage balance of $31,-000. It is plain that the lender’s security is marginal at this point, accepting the debtors’ estimate, and when consideration is given to the realities of a foreclosure sale, I find that the creditor’s security is already impaired and that the debtors have little or no equity in the property.
The house is not necessary to performance of the plan. A rental roof could be obtained for less than it would cost to rescue this house and, indeed, the expense of this house destroys the feasibility of the debtors’ plan, which calls for monthly payments of $286 exclusive of the mortgage obligations.
It follows that plaintiff is entitled to termination of the automatic stay in order that it may proceed with lien enforcement in the State court. As is required by B.R. 921(a), a separate judgment to that effect will be entered. Costs will be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488839/ | FINDINGS AND CONCLUSIONS
THOMAS C. BRITTON, Bankruptcy Judge.
This adversary complaint seeks to set aside the bankrupt’s transfer to his mother on May 24, 1973 of his half interest in eight parcels of land in Georgia. The trustee is proceeding under § 67d(2)(a) of the Act (11 U.S.C. § 107). (C.P. No. 1) Defendant has answered. (C.P. No. 5) The trial, which was continued from November 29 on defendant’s motion, was held on December 20, 1979. This order is a memorandum of decision under B.R. 752(a).
Defendant’s motion to quash service, incorporated with her answer, was heard on November 29, 1979 and was denied at that hearing. (C.P. No. 7)
The parties stipulated that the record for this matter consists of the B.R. 205 examination of the bankrupt, taken on March 16, 1979 (C.P. No. 33), pp. 33 to 46; the bankrupt’s petition and schedules (C.P. No. 1) as amended; the additional facts set forth in Mr. Fowler’s letter of December 10, 1979 to Mr. Schatzman; and the deed of transfer (Exhibit No. 1).
The facts are simple and uncontroverted. In 1968 the bankrupt’s mother, who was seriously ill, deeded her half interest in the eight lots, which are here in question in contemplation of death. That deed was duly recorded. The mother recovered. On May 24, 1973, the bankrupt deeded the property back to his mother without consideration. His deed was not recorded until September 28, 1978, two days after his bankruptcy petition was filed. The bankruptcy schedules reflect liabilities of over $16 million against assets of $47 as of September 26, 1978, the date the petition was filed.
*124A transfer is fraudulent and, therefore, voidable under § 67d(2)(a) if (1) made within one year before bankruptcy, (2) without fair consideration, (3) by a debtor who is insolvent. Collier on Bankruptcy (14th ed.) ¶ 67.34.
Under Georgia law, a conveyance is not perfected until recorded. Georgia Statutes § 29-401; Michael, et al. v. Poss, 1953, 209 Ga. 559, 74 S.E.2d 742. Georgia law is, of course, controlling upon this point. Collier on Bankruptcy (14th ed.) ¶ 67.40, n. 8. The Bankruptcy Act provides that for the purposes of § 67, a transfer is not deemed to have occurred until it is so far perfected that a bona fide purchaser for value could not acquire title, and if that has not occurred before bankruptcy, the transfer is deemed to have occurred immediately before bankruptcy. Section 67d(5). It follows that this transfer must be deemed to have been made within one year before bankruptcy.
“Fair” consideration is defined for the purposes of § 67 in § 67d(l)(e). No consideration was given by the defendant grantee in this instance and the circumstances under which the bankrupt had received the property from his mother do not constitute consideration. Collier on Bankruptcy (14th ed.) ¶ 67.33.
The debtor was clearly insolvent at the time this transfer must be deemed to have been made.
The trustee has, therefore, established that the bankrupt’s conveyance to the defendant, dated May 24, 1973 and recorded in Book No. 63 at pages 219-221 of the public records of Towns County, Georgia, is fraudulent under the provisions of § 67d(2)(a) of the Bankruptcy Act and is void and of no effect. As is required by B.R. 921(a), a separate judgment so providing will be entered. Costs will be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488840/ | FINAL JUDGMENT MODIFYING STAY
ALEXANDER L. PASKAY, Bankruptcy Judge.
THIS IS a real property arrangement and the matters under consideration are the complaints filed by the plaintiffs, Wallace Leinhardt, Charles Baker and Charles Carroll seeking relief from the automatic stay provision of Bankruptcy Rule 12-43 in order to proceed with a foreclosure sale of certain real property of the debtor, St. Johns River Assoc. Ltd. The above adversary proceedings were consolidated for trial by stipulation of the respective parties. The pertinent facts as revealed by the record are as follows:
The debtor is an inactive limited partnership which owns as its only substantial asset, a tract of land bordering the St. Johns River in Volusia County, Florida. The property is undeveloped and consists of approximately 570 acres fronting Osteen-May-town Road approximately three and one-half miles east of the town of Osteen, Florida.
The plaintiffs, plus a third mortgage holder, have mortgages with principal and interest balances of $581,378.43. The plaintiffs are claiming an entitlement to attorney’s fees in addition to the unpaid princi*132pal and interest, and there are also unpaid ad valorem real property taxes on the property for the years 1976 through 1978, constituting a lien on the property in the amount of $11,098.33 plus interest and penalties.
The debtor originally proposed that 300 acres of the property would be subdivided into lots which would be sold for cash at a land auction. This proposal would have required expenditures by the debtor of over $250,000 in pre-auction development costs and would have required that the debtor obtain the necessary permits and approvals of various local, state and federal authorities.
However, this court takes judicial notice of the fact that the debtor never obtained a loan commitment to finance the pre-auction development costs and never obtained the requisite approval of the government authorities and, therefore, has abandoned its original proposal to subdivide the land and conduct an auction sale of the developed lots. The debtor now proposes to sell the unimproved land in larger parcels in such a fashion that would require several additional months to be accomplished.
A court of Bankruptcy in a real property arrangement proceeding clearly has the power to restrain and enjoin holders of mortgage liens to enforce the same on properties of a debtor, however, there must be a showing by the debtor that there is a reasonable likelihood of a successful rehabilitation. In re Hartsdale, 2 B.C.D. 1275 (S.D.N.Y.1976); In re Colonial Realty, 516 F.2d 154 (1st Cir. 1975); Pembroke Manor, 547 F.2d 805 (4th Cir. 1977).
The record reveals that the plaintiffs, together with the third mortgage holder, have affirmatively rejected the debtor’s proposed plan of arrangement. Though these mortgage holders are not the debtor’s only secured creditors, they by far hold the debtor’s most substantial secured claims and there is some authority for the proposition that the plan of arrangement could not be confirmed over their objection. In re Spicewood Assoc., 445 F.Supp. 564 (N.D.Ill.1977). However, even if the debtor successfully uses the cram-down provision of Sec. 461(11) of the Bankruptcy Act to overcome the objections of the plaintiffs and the third mortgage holder, this Court is satisfied that the debtor has failed to demonstrate that a real possibility exists for it to effectuate a successful arrangement. The property in question is, for all practical purposes, the only asset of the debtor-partnership which has, since 1973, been inactive with its sole business activities having been connected with unsuccessful attempts to sell or refinance the property or to pay off past due mortgages, taxes and other liens. Since acquiring the property in 1972, the debtor has made no material improvements or development of the property, has no principal place of business, and has never had any income. The Chapter XII petition was filed on the eve of a foreclosure sale by the plaintiffs and the debtor has since been afforded ample time to salvage the property. However, having failed to obtain the necessary government permits and refinancing for the pre-auction development costs, the debtor has abandoned its original proposal to conduct an auction sale of the subdivided lots and now proposes to sell the undeveloped land in such a manner as would require several additional months. Yet, the debtor has failed to demonstrate that there is a realistic prospect of such a sale generating enough cash to fund the plan of arrangement. Furthermore, it is apparent that the debtor’s proposed plan is one of liquidation and not a plan of arrangement. The property which the debtor proposes to sell is, for all practical purposes, the debtor’s only asset, therefore, when the property in question is sold, there will not remain a viable economic entity which could be rehabilitated.
Thus, in light of the debtor’s history of inactivity and inability to obtain financing, this Court is satisfied that the debtor has not produced sufficient probative evidence to establish that a real possibility exists for it to effectuate a successful arrangement.
In accordance with the foregoing, it is
*133ORDERED, ADJUDGED AND DECREED that the automatic stay imposed by Bankruptcy Rule 12-43 be, and the same is hereby, vacated and modified to the extent that the relief prayed for in the pleadings filed by the plaintiffs is granted to allow the plaintiffs to proceed to judicial sale of the foreclosed property. It is further
ORDERED, ADJUDGED AND DECREED that the costs of this proceeding including court reporters fees be, and the same are hereby, taxed in favor of the plaintiff and against the defendant upon motion and hearing unless agreed upon by the parties. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488842/ | *136FINDINGS AND CONCLUSIONS
THOMAS C. BRITTON, Bankruptcy Judge.
Plaintiff seeks relief from the automatic stay in order that he may proceed to enforce his mortgage lien against the bankrupts. (C.P. No. 1) The trustee has answered that he claims no interest in the mortgaged property and consents to the relief sought by the plaintiff. (C.P. No. 6) The bankrupts filed no answer but appeared, through counsel, at trial. The matter was tried before me on January 3, 1980. This order is a memorandum of decision under B.R. 752(a).
The material facts are undisputed. Plaintiff holds a valid mortgage lien under an instrument dated December 12, 1975, on the bankrupts’ home described in paragraph 2 of the complaint. The debt was in default before bankruptcy and plaintiff had filed a foreclosure action in the State court in 1977. Prosecution of that action was automatically stayed by B.R. 601 and plaintiff seeks relief from that stay under the provisions of B.R. 601(c).
The property in question was claimed as a homestead by the bankrupts and was set apart by the trustee. There is at least one other superior lien against the property and the bankrupts owe approximately $17,000 to the plaintiff.
The bankrupts do not dispute any of the foregoing facts, but seek continuation of the automatic stay on the ground that plaintiff’s loan to them was for the purchase of merchandise for the business then owned and operated by the bankrupt husband. That business failed and prompted defendants’ bankruptcy. These circumstances do not constitute a lawful basis to continue the automatic injunction against lien enforcement imposed by B.R. 601. The purpose of the automatic stay is to preserve any right or asset for the benefit of other creditors, not for the protection of the bankrupt. In this instance, there is no right or interest available to other creditors and, therefore, no lawful basis for continuation of the stay. Plaintiff is entitled to the relief he seeks.
As is required by B.R. 921(a), a separate judgment will be entered vacating the automatic stay insofar as the plaintiff is concerned in order that he may proceed with his mortgage lien foreclosure proceeding presently pending in the State court. This judgment does not, of course, extinguish or diminish defendants’ pleaded defenses in that State court action. Costs, if any, in this proceeding may be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488845/ | ORDER
PAUL E. JENNINGS, Bankruptcy Judge.
This matter is before the court upon application of National Mortgage Company, seeking to impose late charges against the debtor on an arrearage which accrued prior to filing until this deficiency is satisfied and to impose a 2% late charge on each monthly mortgage payment received from the Chapter XIII Trustee which is more than 15 days late. The Trustee maintains that such late charges are penalties and are not allowable in a Chapter XIII proceeding.
The following shall constitute findings of fact and conclusions of law pursuant to Rule 752, F.R.B.P.
National Mortgage Company (hereinafter National) filed a proof of claim accepting *151the debtor’s plan as to the deficiency. By amendment, the debt of National was brought inside the plan and a proof of claim accepting this arrangement was filed by National. Subsequent proofs of claim have been filed accepting payment through the plan of certain arrearages that arose during the administration of the case. Approximately fifteen months will be required to bring current the accrued deficiency.
The few courts that have considered the issue of late charges sustain the position of the Trustee and have held that such charges are penalties which are not allowable claims in a bankruptcy proceeding. The Fourth Circuit explained in In re Hawks, 471 F.2d 305, 308 (4th Cir. 1973):
Under the terms of its loan agreement, the appellant Loan Company is entitled to add substantial charge for delinquencies in making monthly payments. Such a charge is generally regarded as a penalty, certainly in the bankruptcy courts. As such, it is to be disallowed in bankruptcy proceedings (citations omitted) . . . (T)he appellant is subject to the jurisdiction of the bankruptcy court in the enforcement of its indebtedness and it will not, in the bankruptcy proceedings, be permitted to prove and collect the penalties provided in its loan agreement for late payments.
See also Northtown Theatre Corp. v. Michelson, 226 F.2d 212 (8th Cir. 1955); In re The Bohack Corp., 2 Bankr.Ct.Dec. 1740 (E.D.N.Y.1977); In re Meade Land and Development Company, Inc., CCH—Bankr.L. Rep. ¶ 64,003 (D.Pa.1971), aff’d 527 F.2d 280 (3rd Cir. 1975); In re Bryant, CCH Bankr.L. Rep. ¶ 64,390 (D.Va.1972).1
The general prohibition of penalties is found in § 57j of the Bankruptcy Act which forbids allowance of penalties owing to the United States, a state or a subdivision thereof. The basis of § 57j is the distinction between compensation of the creditor who has parted with something of value and the penalty imposed on the debtor in an effort to regulate his behavior. Section 57j does not deal with penalties based on private contracts in which the debtor promises certain payments in the event of his breach of the agreement. However, the effect of this omission has been interpreted to mean that “as a general canon of construction, Congress may be presumed not to have granted to a private individual what by § 57j it denied to the sovereign state.” 3 Collier on Bankruptcy ¶ 57.22 (14th ed.). In re Southern Steel Co., 183 F. 498 (N.D.Ala.1910).
As a result the bankruptcy courts have uniformly refused to enforce penalties of whatever type or character. 3 Collier on Bankruptcy ¶ 57.22. “A bankruptcy court is essentially a court of equity and will therefore not enforce a penalty.” In re Tastyeast, 126 F.2d 879, 881 (3rd Cir. 1941). Thus the Court has refused to allow the penalty incurred by the debtor’s default in payment of operating expenses during reorganization. In re Sierra Trading Corporation, 482 F.2d 333 (10th Cir. 1973). See also Schafer’s Bakeries, 155 F.Supp. 902 (E.D.Mich.1957). Post-petition interest has been disallowed because it was considered to be in the nature of a penalty. Vanston Bondholders Protective Comm. v. Green, 329 U.S. 156, 163, 67 S.Ct. 237, 91 L.Ed. 162. See also 6 Collier on Bankruptcy, ¶ 9.08, p. 1587 (14th ed.).
The policy behind the disallowance of interest or penalties was explained in Vanston Bondholders Protective Comm. v. Green, supra. “For legal suspension of an obligation to pay is an adequate reason why no added compensation or penalty should be enforced for failure to pay.” At 167, 67 S.Ct. at 242. This rule is especially applicable in proceedings in which the debtor is attempting financial rehabilitation under the protection of the Bankruptcy Court. The court should not permit the creditors to *152add further to the debtor’s burden or subvert the purposes of the Chapter XIII proceedings. Matter of Delaney, 534 F.2d 645 (5th Cir. 1976). Following that reasoning the court disallowed interest after the filing date of a Chapter XIII plan where to allow such interest would destroy the plan. In re Carpenter, 363 F.Supp. 218 (W.D.Tenn.1973).
In two similar situations the Court has allowed monies paid to a mortgagee under a Chapter XIII plan to be applied to current payments and arrearage without allowance of late penalties. In re Townsend, 348 F.Supp. 1284 (Mo.1970); In re Pizzolato, 281 F.Supp. 109 (Ark.1967).
National maintains that the authorization of the 2% late charge by the National Housing Act controls in this situation. This ignores the jurisdictional grant of the bankruptcy courts. See In the Matter of Chicago Rapid Transit Co., 129 F.2d 1 (7th Cir. 1942), cert. denied Chicago Junction R. Co. v. Sprague, 317 U.S. 683, 63 S.Ct. 205, 87 L.Ed. 547 (1942). See also In re The Bohack Corp., supra, where Consolidated Edison was not allowed to collect the late charges authorized by the Public Service Commission from the debtor in possession.
The court is not unmindful of the practical difficulties presented on each side. In order to handle the late payments, additional bookkeeping and accounting procedures are required of the mortgagee who thus incurs extra expense. The Chapter XIII debtor, on the other hand, is faced with late charges while she is attempting rehabilitation. This affects the debtor’s ability to perform under the plan. It is the role of the bankruptcy court to balance the equities between creditor and creditor or between creditors and debtor. Vanston Bondholders Protective Comm. v. Green, supra. In this instance the equities lie with the debtor.
The mortgagee has expressed concern that the plan may affect the principal and interest covered by the mortgage. This concern is ill founded since the plan in no way affects either but merely provides for the curing of the default in the debtor’s payments. There has been no proof of any difficulty in the payments presently made by the trustee pursuant to the plan.
Having determined the late charges to be in the nature of a penalty, the Court finds that they are not allowable in a Chapter XIII proceeding.
It is so ordered.
. It may be noted that Tennessee case law indicates that late charges are in the nature of a penalty. The distinction is drawn between interest which is compensation for the continued use of money beyond the due date and late charges which represent an attempt to enforce prompt payment. Wilson v. Dealy, 222 Tenn. 196, 434 S.W.2d 835 (1968); Bang v. Phelps & Bigelow Windmill Co., 96 Tenn. 361, 34 S.W. 516 (1896). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488846/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
There are two complaints before us in the case at bar. The first raises objections to the bankrupts’ discharge under Section 14c of the Bankruptcy Act. The second seeks a determination of the nondischargeability of the debt owed by the bankrupts to the objecting creditor under Section 17a of the Act. We conclude that there is not sufficient evidence to support the complaint objecting to the discharge of the bankrupts under Section 14c and, therefore, we will grant the bankrupts a discharge. Similarly, we find that there is not enough evidence to support a finding that the debt in question is nondischargeable pursuant to Section 17a and, therefore, conclude that the debt is discharged.1
Alex Krause, Jr. (“Krause”) and Rhoda Krause, his wife, were the sole stockholders in a corporation known as Alex Krause, Jr., Inc. (“the corporation”) which was formed to market precious and semi-precious gems and items of jewelry. In June, 1975, Reuben Rifkin (“Rifkin”), an acquaintance of Krause, lent Krause $50,000 so that Krause could pay off the current liabilities of the corporation and thus concentrate on a “Russian” deal, a venture whereby a rare synthetic stone, canasite, was to be distributed through the corporation. The “Russian” deal fell through and Krause failed to repay the loan when it became due on December 31, 1975. Rifkin thereupon threatened to take legal action. To forestall such action, Krause and his wife, on April 14, 1976, after negotiations with Rifkin, on behalf of the corporation and themselves, granted Rifkin a security interest in their present and future individual inventories as well as in that of the corporation. Financing statements covering the inventory were filed to perfect the security interest and a payment schedule was drawn up whereby the Krauses agreed to pay Rifkin $615 per week for two years until the debt of $50,000, plus interest, was repaid. The Krauses made only three payments before defaulting on their note.
Meanwhile, Rifkin continuously sought to obtain from the Krauses a written inventory of the corporation’s gems, an inventory which had been promised to him by the Krauses when the security agreement was executed. During that time, Krause continually stated to Rifkin that the value of the inventory was from $300,000 to $400,000, at cost. On the basis of those representations, and because Krause told Rifkin that the Internal Revenue Service would close down his business if withholding taxes were not paid, Rifkin lent Krause an additional $2,212.24 on August 23, 1977.
Finally, in August, September and October of 1977, Krause gave Rifkin some inventory sheets which he represented to be part of the gem inventory possessed by the corporation at that time. Although most of the items listed had no values placed beside *155them, Krause stated that the value of this inventory was still between $300,000 and $400,000.
In December, 1977, Rifkin foreclosed on his security interest and took possession of the gem inventory on the premises of the corporation. At that time another written inventory was taken by Krause and Rifkin together. This inventory was subsequently appraised by a court-appointed appraiser and has been stipulated by the parties to be worth approximately $20,000 at dealers’ cost.
On February 28, 1978, two petitions in bankruptcy were filed, one by Krause and his wife, and the other by the corporation. There are no significant assets available to satisfy either the corporate or individual unsecured liabilities of the bankrupts. While the corporation was discharged in bankruptcy without objection on September 19,1978, Rifkin filed one complaint on October 26, 1978, objecting to the discharge of the Krauses under Section 14c, and another complaint seeking a determination of the nondischargeability of the debt owed by the Krauses to him under Section 17a.
1. The Objections to Discharge under Section 14c.
Rifkin’s complaint states that a discharge should not be granted to the Krauses because:
(a)[They] destroyed, mutilated, falsified, concealed, or failed to keep or preserve books of account, or records, from which their financial position and business transactions might be ascertained;
(b) [They] obtained money or property on credit, or obtained an extention [sic] or renewal of credit, by making or publishing or causing to be made or published in any manner whatsoever, a material false statement in writing respecting their financial condition;
(c) [They] have concealed their property with intent to hinder, delay, and/or defraud their creditors;
(d) [They] have failed to explain satisfactorily any losses of assets or deficiency of assets to meet their liabilities.2
These grounds are based generally on Section 14c(2), (3), (4), and (7) of the Bankruptcy Act which provides that the court shall grant a discharge unless satisfied that the bankrupt has committed any of the enumerated acts.3 After reviewing all of the evidence presented at the five hearings held in this action, we are not convinced that the plaintiff, Rifkin, has proven by a preponderance of the evidence that the bankrupts have committed any of the alleged acts, and, therefore, we will grant the discharge of the Krauses.4
With respect to the first allegation in the complaint which is based on Section 14c(2)j5 there is not one shred of evidence that the Krauses destroyed, mutilated, or falsified any of their business or financial records. Nor is there any evidence that the *156Krauses failed to keep adequate records of their business activities. Further, there is no evidence that the Krauses concealed from this court or from any of their creditors any of their financial records.6 In fact, it is clear from the evidence that the objecting creditor, Rifkin, never asked to look at the Krauses’ books or the books of the corporation and was never denied an opportunity to do so. The plaintiff’s allegation appears to be based on the theory that the Krauses’ failure to promptly provide Rifkin with a written inventory constitutes a ground for a denial of the bankrupts’ discharge under § 14c(2). The failure of the bankrupts to compile such a written inventory at the request of a secured creditor, made two years before the filing of the petition in bankruptcy, while never refusing to let that creditor inspect the bankrupts’ books, is not, in our opinion, a ground for denying the bankrupts discharge under Section 14c(2). Such a failure by the bankrupts does not constitute any of the acts of destruction, mutilation, falsification, concealment, or failure to keep records that are enumerated in Section 14c(2) and, therefore, the discharge of the Krauses is not barred by Section 14c(2).
With respect to the second allegation based upon Section 14c(3),7 the evidence is uncontroverted that no writing, false or otherwise, relating to the financial condition of the Krauses or of the corporation was given to Rifkin prior to the $50,000 loan in June, 1975, or prior to the agreement extending the time for repayment of the loan in April, 1976.8 The evidence shows that prior to receiving the $50,000, Krause made several oral statements respecting his financial condition.9 However, the only written statement given by Krause to Rifkin at that time was a piece of paper listing some of the creditors of Krause. Rifkin testified that, taking a quick glance at the paper, he saw about $25,000 listed as owed to various people.10 There was no evidence presented, however, to prove that that list was false in any way (i. e., that the debts listed were not, in fact, owed or that Krause represented that the list was a complete one when, in fact, it was not).11 Therefore, we must conclude that the list shown to Rifkin was not a materially false statement in writing respecting Krause’s financial condition made by Krause to obtain the $50,000 loan from Rifkin. Since no other writings were given to Rifkin by Krause prior to or contemporaneous with obtaining the loan, we find that Krause did not commit any of the acts enumerated in Section 14c(3) in obtaining the $50,000 from Rifkin.
Similarly, there is no evidence that Krause gave Rifkin any written statements at the time when the extension of the loan and the security agreement were being ne*157gotiated.12 Therefore, we find that Krause did not commit any of the acts enumerated in Section 14c(3) in obtaining the agreement from Rifkin to extend the time for repayment of the $50,000 loan.
There is a question, however, with respect to the circumstances of the $2,212.24 loan which Rifkin made to Krause on August 23, 1977. That loan was apparently made on the same day that Rifkin received the first written inventory from Krause.13 The question presented is whether that inventory is a materially false written statement pertaining to the Krauses’ financial condition which induced Rifkin to make that loan. Although there was evidence presented that the written inventory of August 23, 1977, was false, in that the values placed on the gems were too high,14 we conclude that Krause did not commit any act within § 14c(3) because we find that Rifkin did not rely on that inventory in making his decision to loan the $2,212.24 to Krause.15 This finding is based on the fact that no evidence was presented that Rifkin relied on the written inventory or even that Rifkin received or read that inventory before deciding to loan Krause the money.16 In fact, Rifkin testified in detail about the reasons he lent Krause the $2,212.24 and reliance on the written inventory was not among them.17 Therefore, we conclude that Rifkin did not rely on the written inventory and, consequently, we conclude that Krause did not obtain the $2,212.24 by making a materially false statement in writing respecting his financial condition upon which statement Rifkin relied.
It was also alleged that the postponing of foreclosure by Rifkin in the fall of 1977, was an extension of credit by Rifkin which was induced by the false written inventories which Rifkin received from Krause. To fit within Section 14c(3) it must be shown that the creditor, Rifkin, actually relied on the false written statements in deciding to extend credit to the bankrupt.18 In the instant case, although there was enough evidence introduced from which this court could conclude that the written inventories were false,19 from the evidence presented we must conclude that Rifkin did not rely on those written inventories in making his decision to postpone foreclosure.
Rifkin testified at length as to his reasons for not foreclosing immediately on Krause’s default. He stated that those reasons were: that he had strong personal feelings for Krause,20 that Krause represented orally that partners would be joining his business thereby giving him the cash with which to repay Rifkin,21 that Krause made oral promises to repay the loan,22 that Krause orally represented his inventory to be worth between $300,000 and $400,00023, while orally representing that his liabilities were under 40,00024 and that Krause agreed to furnish Rifkin with a complete written in*158ventory.25 At no time did Rifkin testify that he relied on the written inventories that he received in deciding not to foreclose.26 Therefore, we conclude that there were no false written statements within Section 14c(3) on which Rifkin relied on deciding to postpone foreclosure after Krause’s default on that note and security agreement.
Therefore, on the basis of the above, we find that the evidence does not support a finding that the Krauses at any time obtained for their business money on credit, or as an extension or renewal of credit, by making a materially false statement in writing respecting their financial condition or the financial condition of their business, and, therefore, we must conclude that they committed no acts within Section 14c(S) which would bar their discharge.
With respect to the third allegation of the complaint which is based on Section 14c(4),27 we find that there is absolutely no evidence that the Krauses concealed any of their property, within one year of their filing in bankruptcy, with any intent to hinder, delay, or defraud their creditors. The evidence presented was that Krause had represented to Rifkin during the year prior to the filing of Krauses’ petition in bankruptcy that the inventory of the corporation was worth between $300,000 and $400,00028 while the inventory that was actually obtained by Rifkin on foreclosure was only worth about $20,000.29 Although such a discrepancy might support a finding that the bankrupt had concealed some of his assets,30 we must conclude in this case that the discrepancy is the result of Krause’s having originally misrepresented to Rifkin the value of the inventory. This conclusion is based on the evidence of the numerous other misrepresentations that Krause made to Rifkin,31 as well as the lack of any evidence that any particular asset had been concealed.32 Therefore, we conclude that *159there is insufficient evidence from which we may conclude that the Krauses concealed any of their assets. Hence, their discharge is not barred by Section 14c(4).
With respect to the fourth allegation which is based on Section 14c(7),33 we find that the objecting creditor, Rifkin, did not meet his burden of proof. In order to prove a bar to discharge under Section 14c(7), the objecting creditor must prove that the bankrupt was called upon to explain losses of assets or a deficiency of assets to meet his liabilities and that he failed to do so or failed to do so satisfactorily.34 Once that is proven, the burden shifts to the bankrupt to explain satisfactorily that loss.35 In the instant case, the objecting creditor, Rifkin, did not offer any evidence that the Krauses had been called upon and failed to explain any losses at any time during the bankruptcy proceeding. Nor did Rifkin ask the Krauses to explain any losses at the five hearings held on the instant complaint. In fact, no loss was even identified as needing explanation other than the “apparent” loss evidenced by the fact that the inventory received by Rifkin on foreclosure of his security interest was valued at $20,000, while Krause had continually represented its worth to be between $300,000 and $400,000. As stated above, we believe that this evidence shows that Krause misrepresented the value of that inventory, not that some of that inventory has disappeared.36 Therefore, we must conclude that there is no evidence to support a finding that the Krauses failed to explain satisfactorily any losses of assets or deficiency of assets to meet their liabilities.
Having thus found that there is not enough evidence to support a finding that the Krauses committed any of the acts enumerated in Section 14e(2), (3), (4), or (7), we conclude that they are entitled to a discharge and will so order.
2. The Nondischargeability of the Debt Owed to Rifkin under Section 17a(2).
In his second complaint, Rifkin alleges that the debt owed to him by the Krauses as a result of the $50,000 loan is nondis-chargeable pursuant to Section 17a. This is in the form of an allegation that the “debt by defendant to the plaintiff was obtained fradulently [sic] by the defendants, that the defendants have concealed their assets preventing plaintiff from collecting the aforementioned debt, that the defendants have purposely avoided the keeping of proper books and records to explain the inability to pay the plaintiff the aforementioned obligation.”37
The only section under which the allegation might fit is Section 17a(2) which states:
a. A discharge in bankruptcy shall release a bankrupt from all of his provable debts, whether allowable in full or in part, except such as .
(2) are liabilities for obtaining money or property by false pretenses or false *160representations, or for obtaining money or property on credit or obtaining an extension or renewal of credit in reliance upon a materially false statement in writing respecting his financial condition made or published or caused to be made or published in any manner whatsoever with intent to deceive, or for willful and malicious conversion of the property of another . . . ,38
As noted above with respect to the allegation under Section 14c(3),39 we find that there is no evidence that the Krauses gave a false writing respecting their financial condition to obtain money or an extension of credit from Rifkin. Therefore, to find the debt nondischargeable under Section 17a(2), we must find that the Krauses “obtain[ed] money or property by false pretenses or false representations.” 40
According to the evidence presented, the only representation made by Krause to Rif-kin prior to obtaining the $50,000 loan was that the money was going to be used to pay off the corporation’s creditors so that Krause could concentrate on the “Russian” deal.41 Although there is no evidence that this money was ever, in fact, used to pay off the corporation’s creditors, there was also no evidence presented that that representation was false when it was made42 —that is, that at the time it was made, Krause had no intention of paying off any creditors. Thus, we conclude that Krause did not obtain that loan by false pretenses or false representations.43
With respect to the extension of the time for repayment of the $50,000, there is evidence that Krause made oral misrepresentations as to the value of the corporation’s inventory. However, obtaining an extension of the time for repaying a loan is not “obtaining money or property” within the meaning of the first clause of Section 17a(2) but rather falls within the second clause of that section — “obtaining an extension or renewal of credit” — for which a false written statement is required to make the debt nondischargeable.44 And, as found above, in the instant case there was no false written statement given by Krause to Rifkin to obtain the extension of time.45
Thus, we conclude that there is no evidence that the Krauses obtained the $50,000 loan from Rifkin by false pretenses or false representations so as to render that debt nondischargeable under Section 17a(2).
. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. Complaint of Reuben Rifkin objecting to the discharge of Alex Krause, Jr., and Rhoda Krause filed October 26, 1978.
. 11 U.S.C. § 32c (1978).
. Under Rule 407 of the Rules of Bankruptcy Procedure, the plaintiff in a trial on a complaint objecting to discharge has the burden of proving the facts essential to his objection. This has been interpreted to mean that the plaintiff must make out a prima facie case to withstand a motion to dismiss and, on all the evidence of the case, must sustain a charge against the bankrupt by the preponderant weight of the evidence as is the rule in most civil cases. See 12 Collier on Bankruptcy Ch. 407, ¶ 407.3 (14th ed. 1978). The Court of Appeals for the Third Circuit interpreting Rule 407 in a recent case, In re Decker, 595 F.2d 185 (3d Cir. 1979) held that a trial judge “is not compelled to accept a plaintiffs testimony even if contradicted. The plaintiff has the burden of proof and the trial judge may find that the testimony does not carry that burden.” Id. at 190, quoting Santana v. United States, 572 F.2d 331, 335 (1st Cir. 1977).
.Section 14c(2) states that:
c. The court shall grant the discharge unless satisfied that the bankrupt has ... (2) destroyed, mutilated, falsified, concealed, or failed to keep or preserve books of account or records, from which his financial condition and business transactions might be ascertained, unless the court deems such acts or failure to have been justified under all the circumstances of the case.
11 U.S.C. § 32c(2) (1978).
. See 1A Collier on Bankruptcy § 14, ¶ 14.33 (14th ed. 1978) which states that:
Under Rule 407 the plaintiff has the burden “of proving the facts essential to his objection." Accordingly, the plaintiff will be required to go beyond a showing of “reasonable grounds” and adduce proof of the facts which will establish that the bankrupt has committed the act charged before the burden of going forward with the evidence will shift to the bankrupt.
Id. at p. 1373. Since, as we have found above, the plaintiff in the instant case has offered no evidence that the bankrupts committed any of the alleged acts, the plaintiff has failed to sustain his burden of proof.
. Section 14c(3) states:
c. The court shall grant the discharge unless satisfied that the bankrupt has ... (3) while engaged in business as a sole proprietor, partnership, or an executive of a corporation, obtained for such business money or property on credit or as an extension or renewal of credit by making or publishing or causing to be made or published in any manner whatsoever a materially false statement in writing respecting his financial condition or the financial condition of such partnership or corporation . ...
II U.S.C. § 32c(3) (1978).
. Section 14c(3) makes it clear that the false statement must be in writing. Id. See 1A Collier on Bankruptcy § 14, 1] 14.38 (14th ed. 1978).
. See N.T. at 215-19.
. See id. at 216.
. See id. at 216-19, 283-87, 325-39, 401-02.
. See N.T. at 226-30 and 258-73.
. See id. at 236 and 248-49.
. See id. at 365.
. See Morimura, Arai & Co. v. Taback, 279 U.S. 24, 49 S.Ct. 212, 73 L.Ed. 586 (1929), rev’g 21 F.2d 161 (3d Cir. 1927). See also, 1A Collier on Bankruptcy § 14, ¶ 14.39 (14th ed. 1978). Collier states:
It was never the intention of Congress to extend clause (3) [of Section 14c] to all cases of false written statements where credit happens to have been given. It should be confined to cases where the decision to give credit was induced by the false statement, which must have been, if not the moving cause behind the giving, extending or renewal of credit, a contributing cause, i. e.: the lender or seller must to an extent at least have relied upon it.
Id. at p. 1388.
. See N.T. at 248-49.
. See id.
. See note 15 supra.
. See note 14 and accompanying text supra.
. See N.T. at 232, 235 and 242.
. See id. at 238-39 and 242-43.
. See id. at 235.
. See id. at 230, 236, 240 and 242-43.
. See id. at 235.
. See id. at 232.
. See id. at 232-243. In fact, Rifkin’s testimony seemed to indicate that he was not at all satisfied at that time with the written inventories which he received from Krause because they were incomplete and failed to give any value for many of the gems that were listed. See id. at 233 and 240. Even had Rifkin testified that he did rely on those written inventories in deciding not to foreclose, we would have found that testimony unbelievable because of the fact that those inventories were so incomplete. See exhibits P-8, P-10, and P-11. A reasonable creditor, even one with Rifkin’s naivete, could not have relied upon such an “inventory” where the majority of the items listed had no value placed on them. Further, the time sequence of events would lead us to conclude that Rifkin did not rely on the written inventories in deciding to postpone foreclosure: Krause defaulted on the note sometime in May of 1976, the written inventories were received in August, September, and October of 1977. Rifkin postponed foreclosure over a year without written inventories and foreclosed only a few months after receiving those inventories. Therefore, it would be hard to conclude Rifkin relied on those inventories even if he had so testified.
. Section 14c(4) states:
c. The court shall grant the discharge unless satisfied that the bankrupt has ... (4) at any time subsequent to the first day of the twelve months immediately preceding the filing of the petition in bankruptcy, transferred, removed, destroyed, or cancelled, or permitted to be removed, destroyed, or cancelled, any of his property, with intent to hinder, delay, or defraud his creditors .
11 U.S.C. § 32c(4) (1978).
. See N.T. at 226, 230, 236, 240, and 242-43.
. See id. at 369.
. A discrepancy between what the bankrupt has in assets upon the filing in bankruptcy and what the bankrupt has previously manifested himself to be worth would probably support a bar to discharge under Section 14c(7) rather than 14c(4). See 1A Collier on Bankruptcy § 14, ¶ 14.59 (14th ed. 1978). A finding under Section 14c(4) to bar discharge appears to require evidence that a particular, identifiable asset has been concealed. See e. g., In re Hochberg, 17 F.Supp. 916 (W.D.Pa.1936). See also, 1A Collier on Bankruptcy § 14, ¶ 14.45 (14th ed. 1978).
. Such misrepresentations included: that the liabilities of the corporation were under $40,-000 (N.T. at 235), that partners would be joining the business (N.T. at 238-39 and 242-43), and that a complete written inventory would be furnished (N.T. at 232).
. There was some reference at the hearings in this case to the effect that a tray of diamonds had been concealed. However, the only evi*159dence introduced to prove that was testimony that it was listed on one of the written inventories given to Rifkin by Krause. See N.T. at 241 — 42 and exhibit P-8 at p. 3. Rifkin testified that he had never actually seen that tray but that Krause had said it was out on consignment. N.T. at 242. Rifkin’s son, David Rifkin, also testified that Krause said he had some diamonds in a safe; but, again, David Rifkin had not seen any of them. Id. at 273. Krause was never asked whether the tray of diamonds ever existed and, in fact, he testified that he had stopped dealing in diamonds a year prior to his bankruptcy. Id. at 190. There being no other evidence that such a tray existed, we conclude that the entry in the written inventory was merely another misrepresentation by Krause of the value of the inventory made in an effort to induce Rifkin not to foreclose.
. Section 14c(7) states:
c. The court shall grant the discharge unless satisfied that the bankrupt has ... (7) has failed to explain satisfactorily any losses of assets or deficiency of assets to meet his liabilities
11 U.S.C. § 32c(7) (1978).
. See 1A Collier on Bankruptcy § 14, ¶ 14.59 (14th ed. 1978).
. Id.
. See notes 30-32 and accompanying text supra.
. Complaint of Reuben Rifkin for a determination of the dischargeability of a debt, filed October 26, 1978.
. 11 U.S.C. § 35a(2) (1978).
. See notes 7-26 and accompanying text supra.
. 11 U.S.C. § 35a(2) (1978).
. See N.T. at 215-21, 283, and 325. Although Rifkin did testify on redirect that Krause had told him that the inventory was worth between $300,000 and $400,000 prior to Rifkin’s lending Krause the $50,000 (id. at 290), Rifkin did not mention that representation during his extensive direct and cross-examination. Id. at 209-51, and 283-90. Further, Krause testified that he made no such representation prior to obtaining the loan, although he admitted that he had made representations about the inventory’s value at a later date. Id. at 338. Since the direct and cross-examination of Rifkin was very extensive with respect to the circumstances of the $50,000 loan and nothing was mentioned with respect to any representation by Krause as to the value of the inventory, we are inclined to disbelieve the testimony of Rifkin on redirect. Therefore, we find as a matter of fact that Krause made no representations as to the value of his inventory prior to obtaining the $50,000 loan from Rifkin.
. See 1A Collier on Bankruptcy § 17, fl 17.-16[3] (14th ed. 1978).
. Although evidence was presented that Krause made false oral representations (that the corporation’s inventory was worth between $300,000 and $400,000) prior to obtaining the $2,212.24 loan from Rifkin on August 23, 1977, Rifkin’s complaint does not request that that debt be held nondischargeable pursuant to Section 17a(2). Therefore, since an application for a determination of the dischargeability of that debt was not timely filed, that debt is also discharged. See 11 U.S.C. § 35c(2) (1978).
. See 1A Collier on Bankruptcy, § 17, II 17.-16[2] at p. 1631 (14th ed. 1978).
. See notes 12 and 18-36 and accompanying text supra. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488847/ | FINDINGS AND CONCLUSIONS
THOMAS C. BRITTON, Bankruptcy Judge.
This creditor’s adversary complaint opposes the bankrupt’s discharge under § 14c(2) and (7) of the Act, 11 U.S.C. § 32. (C.P. No. 1) The 1978 Code does not govern this case, which was filed before October 1, 1979. 11 U.S.C. prec. § 101. Plaintiff, alternatively, seeks a determination that its claim is not dischargeable under the provisions of § 17a(2) and (4). The bankrupt has answered. (C.P. No. 3) The trial, which was continued at the bankrupt’s request, was held before me on January 4, 1980. This order is a memorandum of decision under B.R. 752(a).
The facts are not in serious dispute. On September 6, 1977, the creditor gave the bankrupt $52,000 as an investment in the purchase of a truck stop. The parties had had previous business dealings in Venezuela. The arrangement was informal and vague, but the parties ultimately agreed that the business would be owned and operated through a corporation with the parties holding nearly equal shares of the stock. The bankrupt would manage the business. The corporation was formed and, after some delay, the creditor’s share of the stock was delivered to plaintiff’s friend, Colon, because plaintiff was in Venezuela. The truck stop was purchased and all of the creditor’s money was used in the purchase.
The business languished and in October, 1979, its management was surrendered to a principal creditor, the bankrupt abandoning any role in management. No paper work or any other formalities accompanied the management change. Title to all the assets remains in the corporation which is not involved in bankruptcy.
Section 14c(2) denies discharge to a bankrupt who has:
*171“. . . failed to keep or preserve books of account or records, from which his financial condition and business transactions might be ascertained, unless the court deems such acts or failure to have been justified under all the circumstances of the case.”
Section 14c(7) denies discharge if the bankrupt:
. . has failed to explain satisfactorily any losses of assets or deficiency of assets to meet his liabilities.”
The bankrupt has no records at all. He explained on November 20, 1979 that he had no bank statements, checks, deposit slips and did not know where they were. “The accountant might have them. I’m not sure.” He then said, a little later:
“Those statements, when I moved, I don’t know where they went to.
Q. You just sort of left them someplace?
A. I think I threw them away . because when I moved, I believe I just took the clothes and nothing else, television, nothing. I didn’t pick up anything from the house.”
At the trial before me, he said that his accountant had kept all of his records and that he tried to get them a month before trial. He offered no further explanation.
I find that the bankrupt has failed to keep any books or records from which either his financial condition or business transactions might be ascertained and that his failure to do so has not been justified. Collier on Bankruptcy, (14th ed.) ¶ 14.31-33. The bankrupt must be denied discharge under § 14c(2).
The bankrupt invested all of plaintiff’s investment in the purchase of the truck stop and took title in the name of Zamora Truck Stop, Inc. Title remains in that status. The bankrupt has not adequately explained the present disposition of that asset, because no records were kept of the business he managed for the two parties. The evidence before me does not justify any finding that the asset has been lost, although of course I would not be surprised if that were the case. Half of the ownership of the corporation remains in the plaintiff and there is simply no evidence before me as to its present value. Plaintiff has not carried his burden of proving his charges under § 14e(7). See Collier on Bankruptcy, (14th ed.), ¶ 14.59-60.
Similarly, plaintiff has not carried his burden of proving his alternative allegations under § 17a(2) and (4). There is no evidence of false representations by the bankrupt (Collier on Bankruptcy, (14th ed.) ¶ 17.16) and there is no evidence of “fraud, embezzlement, misappropriation or defalcation” by the bankrupt. Collier on Bankruptcy (14th ed.) ¶ 17.24[2]. These alternative allegations, however, become moot in view of the denial of discharge under § 14c(2).
As is required by B.R. 921(a), a separate judgment will be entered denying discharge under § 14c(2). Costs will be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488848/ | OPINION AND ORDER
RICHARD L. MERRICK, Bankruptcy Judge.
SYNOPSIS
Because the legal principles at issue in this case are so far reaching they will be discussed before the facts are described in any detail. The principal issue in the case is whether the mortgagor or the mortgagee is entitled to residual rents collected during the administration of a Chapter XII proceeding subsequently dismissed for failure to file a plan. Illinois law governs all aspects of the case not controlled by federal law. The principal applicable Illinois statute was adopted August 7, 1961, has not been construed in any reported relevant decision, and is entitled:
“AN ACT in relation to the rights of mortgagees and other persons empowered to take possession of mortgaged real estate after default and the enforcement of such rights by the Courts of this State.”1
THE MORTGAGE INSTRUMENT
The case comes on for decision as a matter of first impression in two separate respects. In the first place there is no reported case which construes the governing statute. In the second place there is no reported Illinois ease which determines the posses-sory rights of a mortgagee where the mortgage document has not been a deed.
The actual mortgage document at issue in the instant case is described where relevant *173in the footnotes. All of the Illinois cases considering the relative rights of a mortgagor and a mortgagee to rents after default arose in a different era when the conventional mortgage instrument was an absolute deed in fee, subject to defeasance upon timely payment of the debt secured. (Some of the cases centered around a trust deed, and in others the document was not described).
The present mortgage instrument describes itself as a “MORTGAGE”. The grantor is described throughout as “MORTGAGOR”, and the grantee is described throughout as “MORTGAGEE.” The granting clause reads in pertinent part as follows:
“That to secure the payment of the principal of and interest and premium, if any, on the Note . . . and to secure the payment of all other Indebtedness Hereby Secured . . . the Mortgagor does hereby GRANT, RELEASE, RE-MISE, ALIEN, MORTGAGE and CONVEY unto the Mortgagee all and sundry the property . . .”
Clause 20 describes the interest of the mortgagee as a “lien.” Clause 28 speaks of title in the Mortgagor, and clause 30 speaks of the Mortgagor as record owner of the premises.2
There are words in the document that have the ring of an outright conveyance; there are other words that have a security interest connotation. Before the Court can approach the question of whether the Mortgagor or the Mortgagee is entitled to any residual net rents collected during the period of administration under Chapter XII but not expended at the time of the dismissal, the Court first must establish whether the mortgage document conveyed to the Mortgagee legal title or only a security interest.
Bearing in mind that the traditional historical mortgage instrument in Illinois, as in England, was an absolute deed in fee, subject to defeasance upon prompt payment of the debt, we may weigh the title factors and the lien factors. On the scale pan favoring title there are:
(a) in the conveyance clause the words “GRANT” and “CONVEY”,
(b) in the quantity clause the words “. . . any and all rights and interests of every name and nature now or hereafter owned by the Mortgagor
(c) and the qualifying words, “. the express condition that if all of the Indebtedness Hereby Secured shall be duly and punctually paid then this Mortgage and the estate, right and interest of the Mortgagee in the Premises shall cease and become void and of no effect.”
On the scale pan favoring lien are:
(a) the document is called a “Mortgage”,
(b) the grantor is called a “Mortgagor”,
(c) the grantee is called a “Mortgagee”,
(d) the words “RELEASE”, “REMISE”, “ALIEN”, and “MORTGAGE” appear alongside “GRANT” and “CONVEY”,
(e) the phrase “Indebtedness Hereby Secured” runs throughout the document,
(f) the Mortgagor retains possession,
(g) the document is a Security Agreement for the purpose of the Uniform Commercial Code, respecting the associated personal property,
(h) the Mortgagor remains the owner of the associated personalty — it was not sold to the Mortgagee,
(i) the interest of the Mortgagee is described as a lien,
*174(j) title remains in the Mortgagor,
(k) the Mortgagor and his successors are referred to as “record owner”.
From the foregoing the Court finds that the intent of the parties was to convey a security interest only in the premises to the Mortgagee. The Court also finds that the form of the document is a mortgage and not a deed. As such, it is different from the forms of conveyance which have been the subject of all of the relevant reported cases which have come to the attention of the Court. All of the Illinois cases which deal with the mortgagee’s rights to rents turn in part on the theory that the Mortgagee, or the trustee acting on his behalf, holds title to the property.
HISTORICAL BACKGROUND
“There is perhaps no species of ownership known to the law which is more complex, or which has given rise to more diversity of opinion, and even conflict in decisions, than that which has sprung from the mortgage of real property.”3
Like the warp of a fabric which has been overlain with ornamentation, the logic of current mortgage law is seldom discernible because it has become encrusted with customs and procedures which are unrelated to the simple economic transaction of borrowing money and placing an interest in the land as security for the repayment of it. But starting from a rudimentary beginning one can find a continuity through the rigidity of the forms of action and common law pleading and the intricacies of feudal tenure. A recital of the essential facts in this case will follow a tracing of 900 years of evolution of the real estate mortgage in the Anglo-American tradition.
Many of the treatise writers describe as the origin of real estate mortgages methods and rules of law which were in effect in the latter part of the fourteenth century.4 Contemporary decisions frequently do the same thing, which complicates a comprehension of the basics for two reasons:
(a) it passes over the importance which the laws prohibiting usury had in the formative period • of the eleventh, twelfth and thirteenth centuries and the devices which were used to circumvent those laws, and
(b) it creates the impression that feudal tenure concepts were the chassis of real estate mortgages, whereas they are only the body which is seen and obscures the functioning parts.
For purposes of simplification the subject of usury will be considered separately and not chronologically.5 The original meaning of usury was a charge for the use of something — any charge, there was not at the beginning any connotation of excess charge. Usury is prohibited in the Bible in a number of places,6 and during the medieval period fear of excommunication or other censure by the ecclesiastical courts was a greater deterrent than was the civil penalty of confiscation of all of the property of the usurer (not just a forfeiture of the principal of the loan in question).7 Historians of the Crusades, which were being conducted intermittently during this period, suggest that *175the principal secular motivation for prohibiting usury was to enable the kings to finance the Crusades, which they could not have afforded if they had had to pay interest on their borrowings.8
The most significant of the Biblical prescriptions against usury is Deuteronomy,9 which created the rancor which has existed between Christians and Jews for 1500 years because it was interpreted by all but the most orthodox of Jews as permitting the charging of interest by Jews to all persons except Jews. The Christian tenet that it was a universal church to which all might belong caused its theologians to prohibit Christians from charging interest to anybody. The doctrine went that there were no enemy of the Christians who might be charged because all mankind were brothers. It appears that the religious sanctions against Jews for lending to other Jews at interest were not severe, because the practice had become wide spread by the Middle Ages. There are indications that many Jews in that period considered usury to be relative and not absolute and that modest interest was not disapproved.
In dealing among themselves the Jews used a wide variety of conditions, bonds, forfeits, penalties, part payments, specific liquidated damages and a type of sale and lease-back to bury the fact that a charge was being made for the use of money.10 Among themselves in mortgage lending they used a method which became the principal method in their dealing with Christians as well.11 Two instruments were used. An absolute charter of feoffment was executed by the borrower in favor of the mortgagee. An instrument of defea-sance was executed by the mortgagee. Until maturity, both documents were held by a stake holder, frequently the treasury of the Knights Templar, or they were recorded in the Jewish Exchequer. Either way the mortgagee was protected even though the mortgagor remained in possession.
During the thirteenth century the Lom-bards displaced the Jews as financiers of the nobility, while the Jews continued to finance the middle classes. With interest rates running between 40% and 50%,12 one lending group was as scorned as the other, but the Lombards13 were less visible because there were fewer of them and they were largely itinerants. The expulsion of Jews from England by Edward I in 1290 provided a scapegoat to appease the middle classes without disrupting the finances of the nobility.14 It did, however, terminate the Jewish Exchequer and a systematic recording of mortgages. In the twelfth century hypothecations of lands and chattels had been memorialized by recordings in monasteries and abbeys; on a piecemeal basis this continued.
Similarities between the Germanic law and the Saxon law which parallel other similarities between Norman law and Anglo-Saxon law suggest that Civil Law principles governed the early mortgage procedures in England and on the Continent and that regardless of form the intent of the *176parties was to create a security interest in the land in favor of the lender.15 What probably had a greater influence in causing a dominance of Civil Law concepts in the early English mortgage law was that the language of the courts was Latin, and most of the lawyers and judges were or had been Roman Catholic priests.16 Until near the end of the twelfth century the only writings available for lawyers to study were manuscript dissertations on Roman law. The first analysis of the Common Law was Glanville’s “A Treatise of the Laws and Customs of England”, written about 1181 in Latin. Also in Latin was Bracton’s “On the Laws and Customs of England”, written about 1250. The first law book not written in Latin was “Littleton on Tenures” written in Law French and published in 1481 as the first printed English law book. Thus it was that persons with considerable background in the Civil Law were predominant in shaping early Common Law.
In early English law a pledge was a “gage” (vadium ).17 If the lender held the security, it was a pawn. If the borrower held the security, it was a hypothecation. One form of gage was the living gage (vivi-um vadium) under which by agreement the rents and profits were used to reduce the debt. Another form of gage was the dead gage (mortium vadium) under which the rents and the profits were not used to reduce the debt but rather were payed to the lender in lieu of interest. Although the dead gage was not as common as the living gage, it is the source of the term mort gage, or mortgage, which came to be used to describe the gamut of real and personal property pledges now commonly referred to as mortgages and chattel mortgage. The dead gage was one of the methods that the Christians used in an attempt to avoid the usury laws, but they were subject to excommunication and confiscation of all property if caught.
It would appear that in the early gages the value of the land was roughly the equivalent of the amount of the debt. Upon termination of the gage the creditor would be entitled to the land if the debt had not been paid, to be achieved by forfeiture or sale. There was no personal liability on the part of the borrower if the value of the land happened to be less than the amount of the debt, nor was there any surplus payable to the borrower if the value of the land exceeded the amount of the debt. To use the idiom of a different era, that was the luck of the draw. The concept of a personal liability for the debt did not develop for about 100 years. At the outset a creditor would lend no more than he thought that the land was worth, or would be worth at the end of the agreed term.
Two types of gage which were used in the twelfth and thirteenth centuries grew into disuse as the formalities and technicalities of feudal tenure began to be observed more closely, form began to be put ahead of substance. A short explanation of “seisin” may expedite the exposition of different kinds of gages.
Theoretically, after the Convocation at Salisbury in 1085 William the Conqueror (and his successors as kings) owned all of the land in England. The lords, who were tenants of the. king, had sub-tenants, ad infinitum, each of whom owed fealty to his superior, up to the sovereign. The modern equivalent of ownership was a tenancy in fee simple (A and his heirs), the second degree of ownership was a tenancy in fee tail (A and the heirs of his body), and the third was an estate for life (A for life). These three estates were freehold estates, and possession of a tenancy in freehold constituted seisin. Various rights and privileges were associated with seisin, but the one which is significant for mortgage purposes is that only a person who was seised of a freehold could maintain an action of ejectment, and ejectment was the form of action *177by which were determined ownership and right to possession of land.
The gage in which the creditor took possession by agreement with the borrower came into disfavor because the creditor was not seised of the property and under the forms of action could not enforce his right to possession against a third party. Thus the gagee was dependent upon the gagor to assert his own seisin to dispossess the third party, an arrangement under which the ga-gee could not control his own destiny.
The other type gage which fell into disuse because of the conveyancing technicalities of feudal tenure was one in which the borrowing owner would pledge the property to the lender for a term of years with a provision in the contract that upon default the pledgee’s interest by mere force of the contract would be converted into a fee and become absolute. This might have solved the practical problem of seisin, but it contained the theoretical flaw that it constituted a springing freehold interest. A variation in which the owner would convey the property in pledge to the lender for a term of years with a remainder to the grantor on payment of the debt was technically faulty because it provided for a contingent remainder after a term of years; also it did not solve the matter of seisin. Principles of feudal tenure required that at the end of every chain there had to be a vested interest in fee.
The problems respecting a mortgagee’s ability to defend his possession were solved by use of a deed upon condition, variously called a defeasible fee, or a base fee, or a determinable fee, or a fee on condition broken, or a fee subject to a condition subsequent. Land was conveyed to the creditor in fee, accompanied by livery of seisin, on the condition that the conveyance be void if the debt should be paid promptly upon maturity, otherwise to stand absolute.18 This became the form of mortgage used generally in England and in the United States for the ensuing 500 years.19 Most of the treatises read as though it continues to be the principal form in use, which is highly doubtful. It was not the form used in the instant case.
In the early gages described above where the debt was the functional equivalent of the value of the land, possession of the land always passed to the creditor, who would become owner of the land if the debt should not be paid. When the form of mortgage became an absolute deed, a transfer of possession was required because under feudal concepts a conveyance was not complete without livery of seisin. Probably before 1300 it had become established that in a living gage the rents had to be used to reduce the debt, so that as between themselves it was not particularly important whether the mortgagor or the mortgagee had possession. The profits of the land were applied in the same manner in either event. In a dead gage the mortgagee reduced his risk of getting caught for usury if he maintained possession.
In any event from about 1300 to 1550 the normal method in use was for the mortgagee tq be in possession during the term of the mortgage. A shift began in the reign of Elizabeth, which was well developed by 1600 and practically completed by the Restoration in 1650 of having the mortgagor retain possession. By then many of the mortgagees felt that the burdens of responsibility for the rents outweighed the benefits of the slight additional security which possession gave to them.
Although the courts of law had recognized the true nature of the mortgage as a *178security interest as early as 1314,20 later in that century and throughout the 1400’s and 1500’s the law courts were becoming increasingly entangled by trying to express in terms of feudal tenure what was a very simple concept under the Civil Law, namely, that the mortgagee had a security interest and that the mortgagor was the owner for all purposes not inconsistent with the security interest. The parol evidence rule caused the law courts a great deal of trouble because frequently the substantive condition was the opposite of the formal appearance. The forms of action presented problems because the action of ejectment was too narrow in its scope to handle many of the questions which arose. The law courts’ biggest problem, however, was in attempting to maintain the symmetry which was the keystone of feudal tenure.
Most of the cases which arose in the law courts were not controversies between the mortgagor and the mortgagee but were public issues involving one or the other of them and third parties. Did the mortgagor or the mortgagee have the right to vote where the franchise was based upon ownership of a freehold? Which of them would have the right to hunt where the hunting privilege was based upon owning a freehold? Would the widow of the mortgagor or of the mortgagee have a dower interest in the land? Would the interest of the mortgagee pass to his heirs or to his next of kin? By a fairly good margin most of these public issue cases arrived at the result that the mortgagor should be considered the owner, but this was contrary to form and bedeviled the judges in attempting to produce decisions which were consistent geometrically with precedent. In the late 1700’s Lord Mansfield led the way among the law judges in considering the mortgagee’s interest to be for security purposes only and not as an estate.21 The law courts had had no difficulty in dealing with the non possessory lien interests of creditors established under the Statute Merchant and Statute Staple and subsequent similar acts,22 but they seemed unable to draw the parallel to the interest of a mortgagee under an absolute conveyance subject to de-feasance.
In the fifteenth century the Courts of Chancery, as a haven for oppressed mortgagors, began to develop procedures for requiring a reconveyance by mortgagees under circumstances evidencing fraud or duress by them, as well as conditions that indicated extreme hardship to the mortgagor unrelated to fault by the mortgagee. The movement was accelerated by what had become a somewhat common ploy by mortgagees who had exacted from their respective mortgagors a bond in double the amount of the debt to ensure payment at maturity.23 In an action at law brought against him on the bond the mortgagor would not be permitted to introduce parol evidence of an agreement by the mortgagee to reconvey title to the mortgagor upon payment of the debt. From a smattering *179of cases heard by himself in detail during the reign of Henry VI, the Chancellor increasingly delegated hearings to others to the extent that by 1625 it was no longer necessary to plead special circumstances, and any mortgagor who had failed to make full payment on maturity of the debt was given a period of time in which he could cure his default by making payment of the principal, interest and costs. This equitable right of redemption came in time to be called an “equity of redemption”,24 the transfer or assignment of which was recognized in Courts of Chancery. Opinions differed as to whether it was indeterminate or had a 20 year limitation similar to other adverse interests in property. In any event, as the right to redeem became practically automatic the Courts of Chancery recognized that the pendulum had swung too far.25 Where equity required it, they would set a termination date, but shortly a standard procedure was established called a foreclosure, the only effect of which was to terminate, or foreclose the right of redemption. It did not otherwise affect the relationship between the two parties in any respect. It did not cause a sale, and it did not establish a deficiency.
PART II
TITLE THEORY AND LIEN THEORY26
As stated previously, the conventional method of creating a mortgage in England after about 1350 was for the borrower to execute an absolute deed of conveyance to the lender, subject to a defeasance in favor of the borrower in the event that the debt was paid at maturity. The same method was used in America during the Colonial period and after independence.
Since independence there has been a considerable divergence in the way that mortgages have been interpreted in the several states.27 Although not using Civil Law argument or precedent, a plurality of the states have arrived at a similar result; namely, that regardless of the form which the conveyance may take, a mortgage essentially is a security interest, and not an estate. With respect to the minority of the states it is only possible to declare what the last positions of record have been where the form of mortgage has been an absolute conveyance or other form of deed. It is not possible to postulate with supporting authority what their positions would be if the form of the mortgage transferred only a security interest. For a variety of reasons the position of a mortgagee vis a vis the mortgagor and also in relation to other creditors is stronger if he is considered to have an ownership interest in the property rather than just a security interest.
A simple syllogism explains why that is. Ownership carries with it possession, and possession carries with it rents. At com*180mon law the mortgagee had an immediate right to possession, which continues in some states but is not true in Illinois where the mortgagee does not have a right to possession until after default. The possession .must be achieved by some peaceful means, usually the consent of the mortgagor or an action of ejectment. The basic difference between the title states and the lien states is that after default in a lien state the mortgagee must first institute a foreclosure proceeding to bring the title to him before he can exercise ownership prerogatives. In a title state the mortgagee can proceed immediately to effectuate his existing right to possession.
Pomeroy, Jones and Walsh28 have analyzed the statutes and decisions in the states other than Alaska and Hawaii and have made classifications in which they agree on 35 states and either disagree or express no opinion on the remaining 13. Of the 35 on which there is agreement the authors categorize 16 as “title” or common law theory states, which signifies that the courts of those states would hold that a mortgage deed conveys some form of title to the mortgagee. In the 19 “lien” or equity theory states a mortgage deed would not convey title to the mortgagee. All of the writers consider Illinois to be a title theory state. Kratovil creates a sub-classification of the latter, which is called “intermediate” state, that is, a title theory state which does not permit the mortgagee to maintain an action of ejectment prior to default. Illinois, New Jersey, North Carolina, and Ohio are intermediate states under this nomenclature.
The reasons that a majority of the states adopted a lien theory are sociological and pragmatic as much as they are legal. All of the states west of the Mississippi River, with the exception of Arkansas, are classified by one or more writers as being lien theory states. By and large the residents of the Western and Southern states have been debtors in relation to the Eastern financial districts of Boston, New York and Philadelphia, and a debtor-oriented mortgage philosophy is as predictable as a debt- or-oriented exemption and homestead philosophy. At the time of their admissions to the Union, these states were undeveloped, with lawyers and judges less trained than those of the East and of England and drawn frequently from middle and lower classes instead of upper classes and nobility. Many of the states were not able to afford the dual system of law and Chancery Courts, with the result that law courts had a broader outlook than they might have had otherwise. The courts that did exist were few, far apart and practical. Code pleading had just been introduced in the East and was copied widely.
No purpose would be served by a general discussion of the lien theory, but it may be in order to remark that the word lien is one of the most loosely and excessively used terms in the law, with many different meanings. Mr. Justice Erie described it as being “intensely undefined.”29 Judge Learned Hand considered it “surely the most comprehensive of words.”30 Although at common law liens generally were possessory, the liens authorized by the statutes merchant and staple were non-possessory,31 as are present day mechanic’s liens and judgment liens. A lien which is neither possessory nor recorded can present opportunities for defrauding innocent third parties. Because mortgagors normally maintain possession of the mortgaged premises, mortgagee’s liens are non-possessory but continue to protect the mortgagee if recorded. As used in the Bankruptcy Act and the Bankruptcy Reform Act the word “lien” is all encompassing.
*181POSSESSION AND ENTITLEMENT TO RENTS32
During that long period of time when all rents from property mortgaged in a living gage were required to be used to reduce the mortgage debt, it did not matter materially whether the mortgagor or the mortgagee maintained possession because the rents would be used in the same manner in either event. Nevertheless, it generally has been accepted that whichever of them had possession was entitled to the rents. Thus the question usually posed is not “Who is entitled to the rent?” but rather “Who is entitled to possession?”
For more than three hundred years the universal custom has been for the mortgagors to maintain possession and consequently to collect the rents. A change which did take place during this period was that use of the collected rents became unrestricted instead of being restricted to a reduction of the debt, which substantially increased the mortgagee’s exposure to loss. As a means of compensating for the added risk a common usage developed in mortgages covering commercial property of having the rents assigned to the mortgagee as an additional security. The pattern of these rent clauses, however, was that they did not become functionally operative until default. They were almost universally construed as providing a second source of payment of the debt not to be used, however, until it had become established that the land itself did not have sufficient value to repay the debt.
It is in that sense that Illinois courts have considered rent clauses. Levin v. Goldberg33 and Stevens v. Blue34 are the latest in a series of Illinois cases which hold that by itself a rent clause does not give the mortgagee a lien on rents. It is implicit in the decisions that if the mortgagee had taken a second step and had taken possession or had had a receiver appointed, then the mortgagee would have had a prior claim to prospective rents collected after the taking of possession or constructive possession.35 A rent clause might be compared to an invitation to attend a party. If the mortgagee takes some action and attends the party, he obtains special rights. On the other hand if he does not attend the party, his rights are no greater than those of persons who were not even invited. After default if a mortgagee takes action and a deficiency is apparent or develops, he may obtain a first claim on the rents. If he does not take action, however, he normally has no greater interest in the rents, than a general creditor.
ILLINOIS LAW
Pomeroy, Jones and Walsh have classified Illinois as a “title” theory, or common law theory, state. Kratovil calls it an intermediate state because the mortgagee may not maintain a possessory action prior to default.36 All of the writers base their classifications upon the assumption that the mortgage instrument is one by which title is transferred, i. e., it is some form of deed. Two forms of deed have been used commonly in the mortgage field in Illinois. One is an absolute conveyance subject to defea-sance upon timely payment of the debt. This is similar to the conveyance which has been used in England for the last 600 years and not unlike that used by the Jews for several centuries before that, except that *182here the conveyance and defeasance are in a single document, both made by the grant- or, a combination which developed in England about 1500. The second form of deed is a trust deed by which title is passed to a trustee whose described functions are not unlike those which would be performed by an agent of the mortgagee.
The treatises do not discuss what the situation would be if the mortgage document employed should convey only a security interest, but the answer seems quite obvious. If title is not transferred, those rights which are attributable to ownership will not be transferred either. There has been no reported case in Illinois which deals with the possessory rights of a mortgagee whose interest is derived from a mortgage, rather than from a deed. Consequently, this question must be considered as a matter of first impression because the mortgage instrument here under consideration is a mortgage and not a deed.
The latest Illinois Supreme Court decision on the possessory rights of a mortgagee is Rohrer v. Deatherage,37 which upheld the title theory but stated it in the obverse because of the nature of the issue before the Court, “In this State a mortgagor is the legal owner of the mortgaged premises against all persons except the mortgagee.” The language of the decision is consistent with other Illinois cases going back for more than a century.
Subsequent Appellate Court cases follow the same line of reasoning and either disclose that the mortgage instrument is a deed or remain silent on the nature of the document. The Rohrer language is almost identical to that which had been used 70 years earlier in Hall v. Lance,38
It cannot be emphasized too strongly, however, that all of these decisions are based upon mortgage instruments which were deeds of conveyance and that no Illinois court has stated what the interest of a mortgagee would be if the mortgage instrument was, in fact, a mortgage. We now hold that in the instant case as a matter of Illinois law all that the mortgage transferred to the mortgagee was a security interest in the premises to pay the debt represented by the note.
POSSESSION AND FORECLOSURE STATUTES
The preceding portions of this opinion dealt primarily with theory and with what the Illinois case law was with respect to the right to possession of mortgaged realty by the mortgagee. Rather extensive legislative changes were made in 1961 relating to possession by a mortgagee and to foreclosure procedures which have not received court construction in the areas germane to us. Sections 9 and 10 of the Illinois Mortgage and Foreclosure Act39 describe the legislative intent and indicate that the purposes of the package of legislation were primarily to establish efficient procedures and revise periods of limitation and not to make changes in substantive law.40 To be more specific the acts established the procedures which would be followed when a mortgagee filed a foreclosure action and the steps which would be taken in that proceeding to place the mortgagee in possession, but they did not deal with the substantive question of the circumstances under which a mortgagee would be entitled to possession prior to the institution of suit. That would appear to have remained unchanged, so that to the extent that the classifications by the pundits of Illinois as a title state or an intermediate state were accurate prior to the legislation, the labels would continue to be applicable afterward.
The reason for the qualification in the preceding sentence and questioning of whether title state and intermediate state are properly descriptive of Illinois law in 1980 is that although there have not been *183any recent court decisions, Illinois real property law has undergone a good bit of modernization since the Rohrer case in 1930. In 1933 a real estate business could be conducted by a corporation for the first time;41 in 1933 Illinois adopted code pleading;42 in 1953 Illinois abolished the Rule in Shelley’s case; 43 in 1955 it abolished the Doctrine of Worthier Title; 44 and in 1975 it abolished dower and curtesy.45 (It had eliminated entailment46 and livery of seisin 47 in 1872). In consideration of these changes and the shift toward a lien theory in other states, it would be surprising, if the Illinois Supreme Court ever again should face an absolute conveyance subject to defeasance, to see that Court hold that the deed did pass title to the mortgagee and not just a security interest. In fact, it is rather doubtful that an absolute conveyance as a mortgage device will ever reach the Illinois Supreme Court again.
That case, however, is not before us. We are considering a situation where the form of the document did not cause title to pass, and the intent of the parties was that title should not pass. We hold that as a matter of Illinois law title did not pass to the mortgagee. As a lienholder the mortgagee was entitled to file a foreclosure action, seeking possession and the appointment of a receiver, which it did. The Illinois Court had not granted either request at the time that the Chapter XII petition was filed in the instant case. Further proceeding in the Illinois Court was stayed by Bankruptcy Rule 12 — 43, the modification of which was not pressed in this Court.
BUTNER v. UNITED STATES48
The parties argued the Butner ease at length in their oral presentations and in their briefs on the issue of whether that decision should be applied retroactively (that is, control the instant case) or prospectively (that is, apply only to cases filed after the decision date of February 21, 1979). Butner represents a resolution by the Supreme Court of a conflict between the Circuits with the Second, Fourth, Sixth, Eighth and Ninth holding the view that the Federal Courts are obliged to enforce the applicable state law on the question of whether a security interest in mortgaged property extends to the rents and profits to be derived from the property. The Supreme Court described the other half of the conflict as follows:
“The Third and Seventh Circuits have adopted a federal rule of equity that affords a mortgagee a secured interest in the rents even if state law would not recognize such interest until after foreclosure.”
If the Third and Seventh Circuits had adopted a federal rule of equity, the one described above was not it. All of the cases in both circuits arose in either Pennsylvania, New Jersey, or Illinois, all of which are title states. In title states foreclosure is unnecessary because the mortgagee already has title. Foreclosure proceedings are an acceptable method to obtain possession in these states, but ejectment would serve the purpose and may be more convenient. In lien theory states foreclosure generally is necessary because the mortgagee has to obtain a title upon which he may found his claim for possession.
The Supreme Court cites four cases to support the above quoted “federal rule of equity” theory. The three from the Third Circuit will be discussed first. In re Pittsburgh-Duquesne Development Co.49 and Central Hanover Bank & Trust Co. v. Phila*184delphia & Reading Coal & Iron Co.50 rely on Bindseil v. Liberty Trust Co.51 The court in Bindseil clearly thought that it was following decisions of the Pennsylvania Supreme Court in Bausman’s Appeal52 and Wolf’s Appeal53 and that In re Industrial Cold Storage & Ice Co.54 and In re Torch-ia55 had also. The latter two cases are cited in Collier as examples of applicable state law giving an equitable right to rents to a mortgagee; “Both of these cases were based on Pennsylvania law.” 56 The reasoning in both of those cases is somewhat difficult to follow, Industrial Cold Storage because in a bankruptcy setting the District Court was attempting to follow simultaneously two non-bankruptcy decisions which were not entirely consistent, Freedman Savings & Trust Co. v. Shepherd,57 from the United States Supreme Court, and Wolf’s Appeal from the Pennsylvania Supreme Court.
As we read the opinion in In re Wakey,58 the Seventh Circuit case cited in Butner for advocating a federal rule of equity, the Seventh Circuit thought that it was applying Illinois law but became confused on the differences in duties between a trustee in bankruptcy, a receiver in a state foreclosure, and a federal equity receiver and thought that the duties of a trustee, with which it was not familiar, were the same as those of a federal equity receiver.
The facts in the Wakey cases were that the mortgagor became bankrupt at a time when the mortgage was not in default. The default occurred through the failure of the trustee in bankruptcy to continue payments to the mortgagee. The mortgagee did not take any steps to exercise his rent clause and could not have taken any state court action because of the pendency of the bankruptcy case. Due to the fact that the mortgaged property was a source of the estate which was being generated by the trustee in bankruptcy for the general creditors, it would have been an acceptable bankruptcy practice to have paid interest on the mortgage as an alternative to authorizing foreclosure.
The first place where the Seventh Circuit slipped into the mire was in not recognizing that the bankruptcy proceeding was the cause of the default and that the mortgage was current when the bankruptcy case was filed. Under such a set of facts the mortgagee could not have instituted a foreclosure proceeding prior to the bankruptcy because the mortgage was not in default and at 'that time there was no basis for foreclosure. The court got bogged down further when it assumed that the existence of a bankruptcy proceeding excuses a mortgagee from pursuing his rights.
The question of what action must be taken by a mortgagee to activate his right to rents is more readily answered by using a philosophical than a case by case analysis. The goal is to arrive at a result which will solve a broad range of problems without creating additional new problems. As a starting point a mortgagee should be chargeable only with those rents which he has an ability to collect. Also he should have a liability only for matters over which he has control. This kind of reasoning seems to underlie Marcon v. First Federal Savings and Loan Association,59 where the court held that actual possession was the criterion for a mortgagee’s liability. We believe the Illinois law to be that the reverse side of the coin is also true. Actual possession is the criterion for a mortgagee’s rights.
*185It has been suggested in the mortgagee’s brief in the instant case that the filing of a mortgage foreclosure proceeding and requesting the appointment of a receiver should be a sufficient action on the part of the mortgagee.
Putting that theory to the litmus test we find that it is unworkable. Looking at the general situation in Illinois, we find that the time interval between the filing of a foreclosure petition and the termination of the statutory right of redemption may be as long as two years, during all of which time the mortgagor ordinarily is able to maintain possession and collect rents without any accountability for the rents collected, unless he consents to surrender possession or there is an order placing the mortgagee in possession or appointing a receiver.
A mortgagee in possession, on the other hand, ordinarily is accountable for the rents because the rent clause is considered additional security for payment of the debt and not a separate independent security. If the mortgagee should be deemed to have been placed in possession when he filed the foreclosure petition, he would be accountable for two years of rents which he did not receive, to be used to reduce the debt. If the mortgagee were deemed to be in possession he might have a liability for a wide variety of losses over which he had no control. Complexities already difficult would become almost overwhelming if he were deemed to be in possession for certain purposes and deemed not to be in possession for others. The tenants would be in a quandary as to whom to pay rents and to whom to present operating problems.
Deeming the mortgagee in possession assumes a successful foreclosure; one can hardly imagine the extent of the complications if the petition should be withdrawn, or dismissed, or defeated. The only practical solution is to have a cut off date which is definitive and recognizable. It can be a surrender of possession, it can be an order of court, but it must be something that is open, notorious and recognizable.
The 1961 Act unofficially headed Right of Possession of Realty after Default,60 while in the drafting stage, called for an automatic placing of the mortgagee in possession upon the filing of a foreclosure petition. As enacted, the law provides that the mortgagee may be placed in possession upon his own application, without hearing unless there is an objection. The presumed reason for the change was the thought that frequently the mortgagees will not want possession if they have to take the burden of operation along with the benefit of rents.61
In the instant case the foreclosure petition was filed November 5, 1976. The Chapter XII case was not filed until June 29, 1977, and we have no evidence that during that eight-month period the mortgagee ever requested that it be placed in possession. The request for the appointment of a receiver is a part of the statutory form of a foreclosure complaint. We have no evidence that the mortgagee ever urged such an appointment.
We hold that the Illinois law is, and for some time has been, that the mortgagee must be in actual possession in order to be entitled to rents.62 We hold that to be the federal law also after Butner. Before Butner the federal court would have recognized that for nineteen months the mortgagee might have had the right to the rents if it had been willing also to accept the burdens. Assuming that the Seventh Circuit felt that there was a federal rule of equity prior to Butner, it would not after a nineteen month period of indecision, lassitude, inactivity or whatever, on the part of the mortgagee, award a portion of the benefits of posses*186sion retroactively; the counter-balancing burdens could not be directed retroactively because they had been performed.
It is immaterial whether Butner applies to this case or does not. Both before But-ner and afterward a federal court would arrive at the same conclusion as an Illinois court. It is insignificant that before But-ner the two courts might have taken different routes. During the Chapter XII proceeding the mortgagee might have moved under Bankruptcy Rule 12-43(d) to modify the stay, permitting it to proceed in the foreclosure court, or it could have requested a receiver in the Chapter XII proceeding.
ABSOLUTE ASSIGNMENT OF RENTS
In addition to the assignment of rent clause contained in the mortgage and discussed above, there was a separate absolute assignment of rents executed on the same day as the mortgage and the note, which was attached to the mortgage as an exhibit. Although expressed as a present assignment, it provided, in part,
“. . . it is expressly understood and agreed, anything herein contained to the contrary notwithstanding, that the mortgagee shall not exercise any of the rights and powers conferred upon it herein until and unless a default shall occur in the payment of interest or principal due under the note secured by the above described mortgage . . .”
The assignment goes on to state:
“In any case in which under the provisions of the above described mortgage the mortgagee has a right to institute foreclosure proceedings, whether before or after the entire principal sum secured thereby is declared to be immediately due, or whether before or after institution of legal proceedings to foreclose the lien thereof, or before or after sale thereunder, forthwith, upon demand of the mortgagee, the undersigned agrees to surrender- to the mortgagee and the mortgagee shall be entitled to take actual possession of the premises or any part thereof personally, or by its agents or attorneys, and mortgagee in its discretion may, with or without force and with or without process of law, enter upon and take and maintain possession of all or any part of the said premises . . . ” (underscoring supplied).
It is not necessary for this Court to determine whether in the instant case the absolute assignment gave to the mortgagee any rights to rents additional to those provided by the rent clause and by the statute described above, for two reasons:
(a) The Complaint seeking relief does not request relief under the absolute assignment but only under the mortgage, and
(b) The absolute assignment is not self-executing but requires a demand by the mortgagee after default. There is no evidence that any such demand ever was made.
STATEMENT OF FACTS
For ease of exposition we shall refer to the parties in interest as mortgagor and mortgagee, although each of them is several steps removed from the original contracting parties.
Mortgagor: Michigan Avenue National Bank of Chicago, an Illinois bank with trust powers, as trustee of Trust No. 2144 and No. 2244, is the mortgagor. The beneficial owner of Trust No. 2144 is a limited partnership of which Robert L. Cook is the general partner. That trust owns the fee to a parcel of land in Summit, Illinois, on which has been constructed Summit Plaza Shopping Center. Trust No. 2244 has a long term lease from Trust No. 2144 and is the operator of the shopping center. The beneficial ownership of Trust No. 2244 is held by Lockport Land Company, a limited partnership of which Cook, Stratton and Company is the general partner. That company is owned by Robert L. Cook.
Mortgagee: The original mortgagee was Percy Wilson Mortgage and Financial Corporation, a Chicago mortgage broker, which assigned its interest to State Farm Insurance Company. After the *187mortgagor had defaulted, State Farm sold its interest to E. N. Maisel and Associates, which holds title to the mortgage in the name of one of its employees, Marion August.
Summit Plaza Shopping Center consists of about 100,000 square feet of retail store space and associated parking areas. Its own financial troubles are a direct result of the insolvency of W. T. Grant Company (hereinafter “Grant”); Grant was the anchor tenant of the shopping center with 50,000 square feet. Because of its own problems which reached a climax after the 1973-74 recession, Grant filed a petition for reorganization under Chapter XI, as a part of which it reduced its national operations, including closing the store at Summit Plaza. The consequent loss of rental income produced severe financial problems for the mortgagor.
At various times during the summer of 1976 the mortgagor defaulted on its payments on the mortgage note, and on November 5, 1976, the mortgagee filed foreclosure proceedings in the state court. On June 29, 1977, the mortgagor filed the instant Chapter XII proceeding, which brought to a halt all action in the foreclosure suit due to the injunctive force of Bankruptcy Rule 12-43. Several motions to dismiss this proceeding were filed, argued, briefed and denied. During the eleven months that the case was active rents from the shopping center were used by the mortgagor to defray the operating expenses of the shopping center.
From the outset it was clear that new capital would not become available to fund a plan of reorganization and that if the debtor could be rehabilitated, the funding of the plan would have to be financed by profits generated internally by the operation of the shopping center. The keystone to a successful operation of the center necessarily was going to have to be obtaining one or more tenants for the vacant 50,000 square feet at a compensatory rent level. The cash flow shortage of the operation precluded incurring the expense of leasehold improvements to accommodate subdividing the 50,000 square feet into smaller units. Due to a general surplus of shopping center rental space in the Chicago suburban area resulting from an over-expansion of this type real estate speculation in the early 1970’s, no success was achieved in obtaining a satisfactory tenant after nearly one year of searching. With no realistic prospects of an early success, the Court dismissed the case on June 5, 1978 for failure to file a plan.
The June 5 order of dismissal provided in pertinent part as follows:
“. . . It is further ordered that this Court reserves jurisdiction over all funds in possession of the debtor in possession including, but not limited to, impressed funds pending further order of the Court.”
There is in this district a local rule which requires a Chapter XI debtor in possession to file a bi-weekly report of cash receipts and disbursements and a monthly report of income and expenses. Commonly debtors in possession in Chapter XII proceedings are required to file similar reports, and such was the situation here. The debtor in possession filed the appropriate reports through April 30, 1978, but has not filed a report for the final five weeks of its operation, nor has it filed a final report. After the June 5, 1978 dismissal the mortgagee filed an application to be reimbursed to the extent of $20,000 for the attorney’s fees' which it had paid previously in connection with this proceeding.
On April 30, 1978, the cash account of the debtor in possession held $35,098.60, all of which represents a net collection of rentals from the shopping center, collected since the institution of the Chapter XII proceeding.
As discussed earlier the mortgage document was a mortgage and not a deed. It contained a rent clause, but the mortgagee did not gain possession of the premises nor achieve the appointment of a receiver. In addition, there was an absolute assignment of rents which did not become operative until a demand for possession was made, and no such démand was made.
*188The complaint of the mortgagee seeks an accounting and also the payment to it of all net rents.
FINDINGS OF FACT AND ORDER
(a) With respect to the absolute assignment of rents the Court finds that the mortgagee did not at any time enter upon and take possession of the premises or in other manner activate its rights under that agreement;
(b) the Court also finds that the state court did not appoint a receiver and did not award possession of the premises to the mortgagee;
(c) the Court also finds that the mortgage instrument at issue herein is a mortgage and not a deed and that under applicable Illinois law title did not pass to the mortgagee;
(d) the Court also finds that the debtor has not completed filing its accounting for its activities;
(e) the Court also finds that the attorney for the debtor has not filed an application for attorney’s fees;
(f) the Court also finds that the mortgagee has no interest in residual funds after payment of all expenses of administration;
(g) the Court also finds that by its order of June 5, 1978 it retained jurisdiction to dispose properly of all unfinished aspects of the case.
THEREFORE, IT IS ORDERED HEREBY that by February 15, 1980:
(a) the former debtor in possession shall file a report in regular form of its accounts from May 1, 1978 to June 5, 1978;
(b) the former debtor in possession shall file a report of its accounts from June 6, 1978 to December 31, 1979;
(c) the attorney for the former debtor in possession shall file an application for such fees as he may deem appropriate, including retainers and other fees previously received; and
(d) the former debtor in possession shall file its objections, if any to the application of the mortgagee for reimbursement for attorney’s fees previously paid.
. 1977 Ill.Rev.Stat. Ch. 95, Secs. 22b.51-22b.62.
. Clause 20. “Foreclosure. When the Indebtedness Hereby Secured, or any part thereof, shall become due, whether by acceleration or otherwise the mortgagee shall have the right to foreclose the lien hereof for such indebtedness or part thereof. In any suit or proceeding to foreclose the lien hereof . . ”
Clause 28. “Title in Mortgagor’s Successors. In the event that the ownership of the Premises becomes vested in a person or persons other than the mortgagor . . ”
Clause 30. “Successors and Assigns. This mortgage and each and every covenant,, agreement and other provision hereof shall be binding upon the mortgagor and its successors and assigns (including, without limitation, each and every from time to time record owner . .”
. Barrett v. Hinckley, 124 Ill. 32, 41, 14 N.E. 863, 865 (1888).
. Pomeroy, Equity Jurisprudence, § 1179, 5th Ed. Bancroft Whitney Company (1941); Tiffany, Real Property, § 1379, 3d Ed. Callaghan and Company (1939); Kratovil, Real Estate Law, § 370, 6th Ed. Prentice Hall, inc. (1964).
By way of contrast see:
Jones on Mortgages, § 7, 8th Ed. Bobbs-Mer-rill Company (1928); G. Osborne, Handbook on the Law of Mortgages, §§ 1-4, 2d Ed. West Publishing Co. (1970); Thompson, Real Property, § 4650, Bobbs-Merrill Company (1958).
. Benjamin Nelson, The Idea of Usury, 2d Ed., Univ. of Chicago Press (1969).
John T. Noonan, The Scholastic Analysis of Usury, Harvard Univ. Press (1957).
. Exodus 22:25; Leviticus 25:36 and 37; Deuteronomy 23:19 and 20; Ezekiel 18:8; Luke 6:35.
. It has been suggested that civil enforcement of the laws against usury was about the equivalent of enforcement of the Volstead Act in the 1920’s and early 1930’s. Interest was first authorized in 1545 with a maximum rate of 10%; 7 Hen. VIII, c.9 (1545).
. Pope Innocent III was particularly vehement about eliminating usury in his exhortations to the kings.
. Deut. 23:19. “Thou shalt not lend upon Usury to thv brother: usury of money, usury of victuals, usury of anything that is lent upon usury.”
23:20. “Unto a stranger thou mavest lend upon usury: but unto thy brother thou shalt not lend upon usury.” (underscoring supplied).
. Jacob J. Rabinowitz, The Story of the Mortgage Retold, 94 U. of Pa.L.Rev. 94-109 (1945).
. Jacob J. Rabinowitz, The Common Law Mortgage and The Conditional Bond, 92 U. of Pa.L.Rev. 179-194 (1943).
. Sidney Homer, A History of Interest Rates, Rutgers University Press (1963).
Those were annualized rates for short term loans unsecured or secured by personal property, frequently expressed as rate per week or month. Long term real property mortgage loans would have been less, probably in the 20% range.
. Why the citizens of Asti and Chiari, in particular, were less concerned about excommunication than other Christians is not clear.
. L. F. Salzman, Edward I, Frederick A. Prae-ger (1968).
. H. W. Chaplin, The Story of Mortgage Law, 4 Harv.L.Rev. 1-14 (1890).
. The Church of England was not split off from Rome until 1534.
.H. D. Hazeltine, The Gage of Land in Medieval England, Part I, 17 Harv.L.Rev. 549-557 (1904); Part II, 19 Harv.L.Rev. 36-50 (1904).
. Rabinowitz suggests that the use of an absolute conveyance in what was essentially a conditional transaction was derived from a Jewish counterpart designed to cope with the doctrine of “Asmakhta”, which made conditional transfers invalid under Talmudic law. The use of an outright conveyance by the pledgor accompanied by a document of defeasance by the pledgee eliminated the conditional element from the visible surface of the pledge. Op.Cit. Note 11, supra.
. By 1400 it was common to have a single instrument, with the conveyance written on the front side and the defeasance on the back. By 1450 the defeasance was also on the face of the deed. By 1500 the conveyance and the defea-sance were both made by the grantor.
. Anon. v. Anon., 3 Eyre of Kent (29 Seld.Soc. Pub.) 95 (1314).
. King v. St. Michaels, 2 Doug. 630, 632, 99 Eng.Rep. 399, 400 (1781).
“A mortgagee notwithstanding the form, has but a chattel, and the mortgage is only a security. It is an affront to common sense to say that the mortgagor is not the owner.”
In America Lord Mansfield was the most widely respected of the English law judges, an opinion not always shared in his home country.
. DeMercatoribus 13 Edw. I (1285)
DeStapulis 27 Edw. Ill, C.9 (1353)
The statutes merchant and staples were designed to encourage merchants to sell on credit by giving them a non-possessory lien on all of the land of the purchaser. The buyer and seller would acknowledge the debt before a judge or other court official, which would become a matter of record. The creation of a lien in favor of the merchant was an extension of the Statute of Action Burnell, 11 Edw. I (1283) and Writ of Elegit, 13 Edw. I, C.18 (1285) which for the first time caused freehold interests in land to be subject to execution for the payment of debt and provided a method of accomplishment. Subsequent statutes staple caused after acquired land to become subject to the non-possessory lien first discussed.
.A double bond occasionally was used as a stratagem for disguising payment of interest. After default the mortgagor would forfeit a bond of double the debt, which was the equivalent of paying the debt and also interest in an amount equal to the debt.
. It was first described as an “equity of redemption” in Duchess of Hamilton v. Countess of Dirlton, 1 Ch.R. 165 (1654).
This redemption procedure had been anticipated by at least 400 years in the Jewish mortgages, which permitted redemption within one year and one day.
Another type redemption had been authorized in the law courts before Edward I caused procedures to become more stringent in the thirteenth century.
. It is not clear why redemption did not redevelop in the courts of law after the enactment of 7 Geo. Ill, c.20 (1734), which provided that in an action in ejectment the mortgagor could establish his title upon payment of the principal, interest and cost of suit.
. Edgar N. Durfee, The Lien or Equitable Theory of Mortgages — Some Generalizations, 10 Mich.L.Rev. 587-607 (1912).
William H. Lloyd, Mortgages, The Genesis of the Lien Theory, 32 Yale L.J. 233-246 (1922).
Sturges and Clark, Legal Theory and Real Property Mortgages, 36 Yale L.J. 691-719 (1928).
Wm. F. Walsh, Development of Title and Lien Theories of Mortgages, 9 N.Y.U.L.Q.Rev. 280-309 (1932).
.No doubt influenced by Lord Mansfield, South Carolina in 1791 passed an act establishing a simple foreclosure procedure, which provided,
“that no mortgagee shall be entitled to a possessory action for the real estate mortgaged, even after the time alloted for the payment of the money secured by the mortgage is elapsed, but the mortgagor shall still be deemed owner of the land and the mortgagee as owner of the money lent or due.”
.Op.Cit. Note 4, supra, Pomeroy, §§ 1187, 1188;
Op.Cit. Note 4, supra, Jones, §§ 18-68;
Op.Cit. Note 26, Walsh, at p. 303;
Op.Cit. Note 4, supra, Kratovil, § 407;
R. Kratovil, Modern Mortgage Law and Practice, § 294, Prentice-Hall, Inc. (1977).
. Brunson v. Allard, (1859 Q.B. 2 El. & El. 19).
. In re Lake’s Laundry, Inc., 79 F.2d 326 (2 Cir. 1935).
. Op.Cit. Note 22, supra.
.Morris Berick, The Mortgagee’s Right to Rents, 8 U. of Cinn.L.Rev. 250-299 (1934).
Note: The Mortgagee’s Rights to Rents añer Default, 50 Yale L.J. 1424-47 (1941).
Note: The Mortgagee’s Rights to Rents and Profits Following a Bankruptcy, 60 Iowa L.Rev. 1388-1400 (1975).
“Rents” is used in the historical discussion, as it is customarily, in the generic sense of emblements, including severed crops, proceeds from the sale of crops, timber, minerals, cattle, and other income or profit from the mortgaged premises. From the context it should be clear that in modem business situations “rents” has its commonly accepted meaning. Rent clauses usually define their own scope.
. 255 Ill.App. 62 (1929).
. 320 Ill.App. 375, 51 N.W.2d 603 (1943).
. E. D. Grigsby, Illinois Real Property Law and Practice, §§ 933-935, 979-981, Burdette Smith Company (1948).
. Op.Cit. Note 28; supra.
. 336 Ill. 450, 454, 168 N.E. 266, 268 (1930).
. 25 Ill. 277 (1861).
. 1977 lll.Rev.Stat. Ch. 95, Secs. 23.8 and 23.9.
.Frank C. Bernard, Legal Aspects of 1961 Mortgage and Redemption Law Legislation in Illinois, 43 Chi.Bar.Rec. 225, 232-235 (1962). Op.Cit. Note 51, infra.
. 1977 IU.Rev.Stat. Ch. 32, Sec. 157.5(d). The absence of this power is the reason for Chapter XII. See: Merrick and Bufithis, Chapter XII Why is it?, 52 Am.Bank L.J. 213-257 (1978).
. 1977 IU.Rev.Stat. Ch. 110, Secs. 1-94.
. 1977 Ill.Rev.Stat. Ch. 30, Sec. 186.
. 1977 Ill.Rev.Stat. Ch. 30, Sec. 188.
. 1977 Ill.Rev.Stat. Ch. IIOV2, Sec. 2-9.
. 1977 Ill.Rev.Stat. Ch. 30, Sec. 5.
. 1977 Ill.Rev.Stat. Ch. 30, Sec. 1.
. 440 U.S. 48, 53, 99 S.Ct. 914, 917, 59 L.Ed.2d 136 (1979).
. 482 F.2d 243 (3 Cir. 1973).
. 99 F.2d 642 (3 Cir. 1938).
. 248 F. 112 (3 Cir. 1917).
. 90 Pa. 178 (1879).
. 106 Pa. 545 (1884).
. 163 F. 390 (E.D.Pa.1908).
. 188 F.2d 207 (3 Cir. 1911).
. Collier on Bankruptcy, § 70.16 n. 38, 14th Ed. Matthew Bender Incorporated (1978).
. 127 U.S. 494, 8 S.Ct. 1250, 32 L.Ed. 163 (1888).
. 50 F.2d 869 (7 Cir. 1931).
. 58 Ill.App.3d 811, 16 Ill.Dec. 253, 374 N.E.2d 1028 (1978).
. Op.Cit. Note 1, supra.
. R. Kratovil, Mortgages — Problems in Possession, Rents and Mortgagee Liability, 11 De-Paul L.Rev. 1-26 (1961).
Op.Cit. Note 40.
. As used here actual possession is intended to include actual possession by the mortgagee and any of his agents as well as a receiver appointed with power to collect rents. This possession would commence with the entry of an appropriate order of court and would not be dependent upon physical presence on the premises. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488849/ | MEMORANDUM OPINION
JOHN R. BLINN, Bankruptcy Judge.
Pinemont ■ Bank filed a complaint to bar the discharge of the Bankrupt under Sec*200tions 14(c)l and 14(c)3 of the Bankruptcy Act and alternatively to determine the dis-chargeability of a debt from the Bankrupt to Pinemont Bank under Section 17(a)2 of the Bankruptcy Act. In brief the allegations of the Bank’s theories are as follows: Under Section 14(c)l the Bank argues the Bankrupt committed an offense under 18 U.S.C. § 152 (1979); specifically that the Bankrupt failed to schedule all his creditors and/or falsely swore to the existence of those creditors in later oral examinations. Under Section 14(c)3 the Bank argues the Bankrupt while an officer of C. J. Limited, Inc. obtained money for that entity on the basis of a purported commitment letter from Mainland Savings Association and that such document was false. Under Section- 17(a)2 the Bank has various theories urged jointly or in the alternative but all of which can be characterized either as obtaining money for C. J. Limited, Inc. on the basis of the Mainland letter, or on the basis of various representations, any and all of which (the letter and the representations) were false.
To these allegations the Bankrupt although denying basically everything save the extension of credit responds in two ways. First, he urges estoppel, res judicata and laches; and second, he denies he had the requisite intent to render the commitment letter or any representations (if made and if relied on) false. The arguments of the Bankrupt as to estoppel, res judicata and laches are not without merit and had they been previously urged, might have been the basis of more summary disposition of these matters. But at this time — with the benefit of a well-prepared case well-tried by both sides — we proceed directly to the merits.
Examining the individual theories raised by the Bank, under Section 14(c)l the Bank argues the Bankrupt failed to schedule and/or in later examinations failed to disclose various creditors, perhaps (the Bank infers) to favor certain relationships and protect his credit. Under Sections 14(c)3 and 17(a)2 the Bank’s case revolves around a purported commitment letter and representations allegedly made by the Bankrupt to James Thomas, the President of the Bank, during the negotiation of the loan, which loan, after suit and judgment, gave rise to the present obligation to the Bank. Those negotiations occurred some time prior to the approval of the loan by the Loan Committee on May 5, 1976, and probably after April 29, 1976, the date of the Mainland letter. The negotiations involved not only the President of the Bank and the Bankrupt but also Charles Johnson, President of C. J. Limited, Inc. On May 7, 1976 the Bankrupt and Mr. Johnson executed the note for C. J. Limited, Inc. and the loan proceeds were disbursed. Notwithstanding these differences in operative facts in the theories and significant differences in the elements of the three theories, the Bankrupt has focused in his presentation on that single element common to all three theories and dispositive of the case, actual intent to deceive, sometimes also described as moral turpitude or intentional wrong. See generally 1A Collier on Bankruptcy ¶¶ 14.26, 14.-40 and 17.16[3] (14th ed. 1979).
Discovery in the case was obviously quite complete, including at least the depositions of Messrs. Johnson, Jeffery and an employee of Mainland, as well as the apparent ability to depose the Chairman of the Board and the ex-President of Mainland. Yet with all this, the Bank produced no direct evidence of an omission of a creditor, a particular in which the contents of the Mainland letter was untrue, knowledge by the Bankrupt at the time of negotiations that the conditions precedent to the enforceability of the Mainland commitment could not or would not be met or the falsity of other representations (not directly related to the Mainland letter). Rather the Bank built its case on inferences and implications. For example, the Bank pointed out the Mainland commitment was never funded and then reasoned backward in time from that result, i. e., because the commitment never funded and the Bankrupt negotiated the loan at the Bank,, the Bankrupt must have known in advance the commitment would not fund.
*201Admittedly the Bank in this case and any objecting party in general has a difficult burden, even more so since the key element — intent—is peculiarly within the knowledge of the Bankrupt and other witnesses potentially sympathetic to his interests. But to sustain the Bank, this Court must accept the circumstantial evidence and disregard direct evidence to the contrary, the testimony of both Messrs. Johnson and Jeffery that they had no such intent. Clearly the testimony of these men must be scrutinized, bearing in mind their own self-interest; yet that does not mean it must be disregarded. Likewise, accepting the Bank’s circumstantial conclusions would require dismissing the strong inference of the length (some 17 pages) and detail of the Mainland letter, a document which hardly seems to have been negotiated only to facilitate bilking the Bank.
For all of these reasons, the relief sought by the Bank must be in all things denied. Counsel for the Bankrupt is directed to present a judgment in conformity with this Opinion within five days. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488850/ | MEMORANDUM OPINION AND ORDER
HELEN S. BALICK, Bankruptcy Judge.
On September 11, 1979, a voluntary petition was filed on behalf of Senator Bill’s, a Delaware General Partnership, by Joan C. Hart, a partner. Partner William F. Hart subsequently joined in that petition. Ronald W. Hayes and Barbara B. Hayes, the other partners, contend that the petition should be dismissed as the partnership is not insolvent. The matter was tried December 4.
If there is a contest by non-joining partners in what is otherwise termed a voluntary partnership petition, the petitioning partners must allege and prove the insolvency of the partnership. The kind of insolvency required is that known as “bankruptcy insolvency”. Section 1(19) of the Act when read in conjunction with § 1(23) provides that a partnership shall be deemed insolvent whenever the aggregate of its property shall not at a fair valuation be sufficient in amount to pay its debts. 11 U.S.C. § 1(19), (23).
Under Delaware law, each partner is personally liable for the debts of the partnership. Thus, to determine whether a partnership is insolvent, we must look not only to the assets and liabilities of the partnership but also to the assets of its individual members, after payment of their individual debts. If then there is insufficient assets to make up the deficiency on the firm debts, the partnership is insolvent. 6 Del. C.Ch. 15; Mason v. Mitchell, 135 F.2d 599 (9th Cir. 1943); See also In re Imperial “400” National, Inc., 429 F.2d 671, 679 (3rd Cir. 1970).
Although the proof adduced was lengthy, there is need for only a limited number of findings of fact. They are:
1. The primary asset of the partnership, a shopping center located at 60 North College Avenue, Newark, Delaware, has a present value of $460,000.
2. The assets of the Harts’ separate estate have a value of approximately $47,000.
3. The value of the use of the Fenster-maker bonds namely $15,000 is either an asset of the partnership or of the Harts.
4. The total liabilities of the partnership and/or Harts is $571,402 (partnership $561,802; Harts $9,600).
5. The present net worth of the Hayes is approximately $499,000.
Placing these findings of fact in “T” account form, assets on the left — liabilities on the right, we have a difference of $449,-598 of assets over liabilities.
Looking at the partnership per se, its liabilities do exceed its assets. However, the personal assets of the partners after payment of their individual debts are considerably more than enough to make up the deficiency on the firm debts. The obligation of the partners to supply these funds to *229the partnership must be considered an asset. Thus, the partnership is not insolvent within the meaning of § 5b of the Bankruptcy Act and the petition must be dismissed.
The stated findings are limited to this contest proceeding and are not to be considered determinative of any issue subsequently litigated in this or any other court between the parties or any other party in interest that participated in the bankruptcy proceeding. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488851/ | MEMORANDUM DECISION
L. WARDEN HANEL, Bankruptcy Judge.
This matter came on for hearing on December 7, 1979 on the motion for summary judgment, filed by the United States, on behalf of the Small Business Administration, pursuant to Bankruptcy Rule 756.
FACTS
On October 11, 1968 the Small Business Administration (SBA) and the Farmers & Merchants Bank of Rockford (Bank) executed a Blanket Loan Guaranty Agreement (Master Agreement). The purpose of the Master Agreement was to establish a mutual arrangement and understanding whereby the Bank could make loans to businesses and through approval of the SBA the loan would be, in part, guaranteed. Should a default subsequently occur the Bank had the right to demand that the SBA purchase its guaranteed percentage of the loan. At that time the SBA could demand, in exchange for a Certificate of Interest, that the Bank transfer, without recourse, the note, collateral and instruments which secured the loan. Additionally, it was agreed that any repayments, security or guarantees which the SBA or Bank had or received in the future under the loan would be used *240to repay the parties in the same proportion as to which they were liable.
Pursuant to the Master Agreement the Bank, on May 21, 1970, requested the SBA guarantee its loan to the Fire Detection Service, Inc. (FDS). On June 26, 1970 the SBA agreed to guarantee 87.5 percent of a $400,000.00 loan subject to the loan conditions submitted by the Bank, the conditions of the SBA on the reverse of the application, and the terms of the Master Agreement.
Under the loan conditions submitted by the Bank, the Bank and FDS entered into a Term Loan Agreement whereby the Bank committed itself to advance the funds. By the terms of this instrument the loan would be guaranteed by certain parties including Cameo Products, Inc. Additionally, the loan would be secured by a security interest given to the bank in all of FDS’s equipment, machinery, contract rights and life insurance.
Subsequently, on November 12, 1970, Cameo, one of the guaranteeing parties, granted to the Bank a security interest in all of its inventory, tools and equipment. It was given to secure the payment and performance of all indebtedness and obligations owed by Cameo to the Bank then or thereafter existing. (It is admitted by the United States that in addition to the obligation allegedly owed by Cameo to the Bank on the $400,000.00 loan there was an existing obligation owed by Cameo to the Bank).
After the filing of a petition under Chapter XI of the Bankruptcy Act by FDS and the requisite notice of default the Bank received the sum of $352,264.36 from the SBA pursuant to the Master Agreement whereby it had guaranteed repayment of 87.5 percent of the $400,000.00 loan. The Bank then assigned, by instrument dated January 8, 1971 any secured interest it had in contract rights, machinery, and equipment by security agreements executed by FDS and Cameo as joint debtors to the SBA in return for a Certificate of Interest.
On June 28, 1971 the day FDS was adjudicated a bankrupt upon failure of the Chapter XI proceedings Cameo also filed a Petition in Bankruptcy. Finally, on October 14, 1977 the United States, on behalf of the SBA, filed a Complaint with this Court seeking a determination of the interests of the SBA and Bank in the amount of $29,-187.95 being held by the Trustee for distribution as a dividend. It is undisputed that this amount represents the sale of certain Cameo property.
ISSUE
The sole issue presented in this case and the subject of the summary judgment proceeding is a determination of the interests, if any, which the SBA and/or the Bank have in any dividend held by the Trustee.
CONCLUSION
In this action plaintiff contends that the dividend in question should be divided 87.5 percent to the United States and 12.5 percent to the Bank. It reasons that the provisions contained in the Master Agreement of October 11,1968 are determinative as to the rights of the parties.
The defendant, on the other hand, contends that the proceeds from the sale of the collateral subject to the Cameo security agreement of November 12, 1970, were security for a separate and distinct debt and therefore the SBA has no legitimate claim to these funds. The Bank’s position, in essence, states that although the security interest which the Bank was granted in FDS’ equipment, machinery, contract rights and life insurance flowed to the SBA the later security interest in Cameo’s inventory, tools and equipment did not because it was not given to secure the $400,000.00 loan. At the very least the Bank contends that there is material issue to be resolved by this Court as to whether there was a requisite intent on the part of the Bank and Cameo to give additional security to the SBA on the FDS loan. Therefore, the Bank concludes that summary judgment should be denied.
When presented with a motion for summary judgment this Court must determine whether there is a dispute as to a *241genuine issue of material fact. Fed.R. Civ.P. 56. When doing so the burden of proof is on the party bringing the motion. See, Weinberger v. Hynson, Westcott and Dunning, 412 U.S. 609, 622 n. 18, 93 S.Ct. 2469, 37 L.Ed.2d 207 (1972); 6 J. Moore, Federal Practice Para. 56.15 (1.-00) at 56-405 (2nd Ed.1970). Additionally, in viewing these facts this Court must draw all inferences in the light most favorable to the non-moving party. See, Adickes v. S. H. Kress & Co., 398 U.S. 144, 158-159, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); United States v. Dibble, 429 F.2d 598, 601 (9th Cir. 1970). On the other hand summary judgment is appropriate when a dispute involves the interpretation of unambiguous contracts. Universal Fiberglass Corp. v. United States, 400 F.2d 926, 928-29 (8th Cir. 1968); Elbow Lake Coop. Grain Co. v. Commodity Credit Corp., 251 F.2d 633 (8th Cir. 1958).
In the present case the Bank and the SBA executed the Master Agreement whereby any security which the Bank had or would receive in the future under the loan in question flowed to the SBA. It is thus undisputed that the security interest which the Bank received in the borrower’s equipment, machinery, contract rights and insurance flowed to the SBA. The Bank contends, however, that the Cameo security agreement of November 12, 1970 was given to secure an earlier, non-guaranteed loan and not the $400,000.00 loan. With that contention this Court cannot agree. By a careful examination of the documents it is clear that the security agreement in the Cameo collateral or its proceeds flow to the SBA. In reaching this decision a two-step approach need be employed.
Pursuant to the Master Agreement the Bank agreed that all security which the Bank received under the FDS loan would flow to the SBA. Subsequently, the Bank received a security interest in all of Cameo’s inventory, tools and equipment. By the very terms of this security agreement it was given to secure all existing or future indebtedness owed by Cameo to the Bank. The instrument states in unambiguous language:
“(T)his Security Agreement is given to secure the payment and performance of all indebtedness and obligations of debtor (Cameo) to secured party (Bank) presently existing and thereafter arising, direct or indirect, . . . .” (Emphasis added).
Thus, it is clear that by the express provisions of this instrument Cameo’s inventory, tools and equipment were security for all obligations owed by Cameo to the Bank.
That, however, does not fully resolve the problem since it is undisputed that the $400,000.00 loan was made to FDS and not Cameo. Therefore, absent some connecting link between Cameo and FDS the Bank’s position is sound. In other words, the Cameo security agreement of November 12,1970 would run to the SBA if, and only if, the loan to FDS could be considered to be an obligation owed by Cameo.
This connecting link is clearly established by three distinct instruments. On June 29, 1970 Cameo unconditionally guaranteed payment at all times of any and all indebtedness then or thereafter owed by FDS to the Bank. By this instrument alone Cameo became obligated to pay the SBA loan. Under the provisions of the Master Agreement between the Bank and SBA all guarantees, in addition to all security, the Bank received under the loan flowed to the SBA in the event of default by the borrower. There are, in addition, two instruments which further support this proposition. By both a September 25, 1969 instrument from Cameo to the Bank and by a June 29, 1970 instrument of Cameo to both the Bank and the SBA Cameo unconditionally guaranteed payment of the $400,000.00 loan. By the express terms of these instruments Cameo became obligated to repay debts incurred by FDS.
The Bank’s argument that the language “in any loan guaranteed thereunder,” found in the Master Agreement, are qualifying words which limit the security flowing to the SBA to that given to secure the guaranteed loan is a correct one. Read together, the express term of the security agreement of November 12, 1970, the three guarantees *242and the Master Agreement make it abundantly clear that the security interest given in the Cameo collateral was given as partial security for the guaranteed loan and therefore is within the above quoted language.
Contrary to the Bank’s position this Court finds that the instruments were not ambiguous in any material respect. Read together they clearly show that the security interest in Cameo’s inventory flowed to the SBA. This Court cannot and will not read ambiguity into otherwise unambiguous documents in order to alter or vary their terms. See, Verlo v. Equitable Life Assur. Soc. of United States, 562 F.2d 1034 (8th Cir. 1977).
Finally, the Bank places much reliance on the Assignment of Security Agreement which the Bank executed to show that the Cameo security agreement of November 12, 1970 was never intended to secure the FDS loan. While it is triie that this instrument does not mention inventory, tools or equipment belonging to Cameo it does not mean that the SBA did not have a valid interest in such collateral. Pursuant to the terms of the Master Agreement the Bank could demand payment of the guaranteed portion of the loan under default by FDS. In return for that payment the Bank was obligated to transfer, without recourse, the note, collateral and instruments which secured the FDS obligation. The Bank’s failure to properly transfer all such instruments does not unilaterally reduce the security for the loan. The Bank had a duty to deal with the SBA in good faith, Frederick v. United States, 386 F.2d 481, 486 (5th Cir. 1967), and may well have breached that duty by attempting to transfer less than all of the security it held on that loan. In any event, the assignment of security interest by the Bank, whether in good or bad faith, does not lessen the security which flowed to the SBA.
On the basis of the foregoing Memorandum Opinion it is hereby:
CONCLUDED that the motion for summary judgment should be granted.
IT IS FURTHER CONCLUDED that the Clerk of the United States District Court, for the Eastern District of Washington should be directed to pay to the Small Business Administration the sum of $25,539.46.
IT IS FURTHER CONCLUDED that the Clerk of the United States District Court, for the Eastern District of Washington should be directed to pay to the Farmers & Merchants Bank of Rockford the sum of $3,648.49.
IT IS FURTHER CONCLUDED that the Small Business Administration should be granted a judgment against Farmers & Merchants Bank of Rockford for interest at the rate of six (6%) percent per annum on the amount of $25,539.46 from September 28, 1977 to the date the Order is entered.
IT IS FURTHER CONCLUDED that counsel for the plaintiff submit an Order in conformity with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488853/ | FINDING AS TO ALLOWANCE OF EXEMPTIONS
H. F. WHITE, Bankruptcy Judge.
The bankrupts, husband and wife, filed an Amended Schedule B-4 on January 3, 1980 each claiming a homestead exemption in the amount of $5,000.00 as provided for under ORC 2329.66(A)(1) as amended and effective September 28, 1979. Exceptions to said amended Schedule B — 4 were filed by the Trustee on January 9, 1980 and the matter was set for hearing. The Trustee and counsel for the bankrupts appeared at the hearing and they were in agreement as to the following Finding of Fact.
FINDING OF FACT
On May 10,1979 the bankrupts each filed a Chapter XI proceedings and on Schedule B — 4 they claimed a homestead interest in real estate located at 1988 Bridger Road, Summit County, Akron, Ohio under ORC 2329.72. However, it was agreed that since they are husband and wife living together they would be entitled to claim a homestead exemption as provided for under ORC 2329.73.
On December 4, 1979 this Court entered an order of adjudication and directed that bankruptcy be proceeded with and the estates liquidated in accordance with the Bankruptcy Act of 1898.
*376The bankrupts filed an amended Schedule B-4 on January 3, 1980 each claiming a homestead interest in the amount of $5,000.00 as provided for under ORC 2329.-66(A)(1) as amended by the Ohio Legislature effective September 28, 1979.
The Trustee filed a report of exempt property on January 4, 1980 allowing a homestead exemption of $1,000.00 each under ORC 2329.73. An objection to the bankrupts’ amended claim of exemptions was filed by the Trustee on January 9,1980.
ISSUE
Should the bankrupts’ exemptions be allowed as of the date of the filing of the original proceedings or as of the date of the adjudication.
LAW
Section 522(1) of the Bankruptcy Code requires the debtor to file a list of property claimed exempt. Said exemptions were claimed on Schedule B-4 on Form 6 of the Interim Rules and Forms as adopted by the Bankruptcy Judges of the Northern District of Ohio as of October 1, 1979.
The exemption section provides that absent an objection by a party in interest to the list of property claimed exempt by the debtor, said exemptions are automatically allowed.
Section 6 of the Bankruptcy Act of 1898 is comparable to 11 U.S.C. Section 522. However, Rule 403(b) of the Bankruptcy Rules of Procedure is applicable only to the Bankruptcy Act of 1898 which requires the Bankruptcy Trustee to examine the bankrupt’s claim for exemptions and within 15 days after the Trustee’s qualification file an exemption report and send a copy of said report to the bankrupt and to his attorney, if the exemptions claimed are not allowed.
The Trustee in the Report of Exempt Property filed on January 4, 1980 did grant the exemptions claimed by the bankrupt on the Schedule B — 4 which was filed on May 10, 1979. No exceptions were taken to this report by the bankrupts or their counsel. Therefore, the only issue for this Court to determine is the Trustee’s objection to the bankrupts’ claim of exemptions as amended on January 3, 1980.
Title IV of the Bankruptcy Reform Act of 1978, Pub.L. 95-598, Section 403(a) provides:
A case commenced under the Bankruptcy Act, and all matters and proceedings in or relating to any such case, shall be conducted and determined under such Act as if this Act had not been enacted and the substantive rights of the parties in connection with any such bankruptcy case, matter, or proceeding shall continue to be governed by the law applicable to such case, matter, or proceeding as if the Act had not been enacted.
Collier on Bankruptcy, Vol. 1, 15 Ed., Section 7.03(1) states that:
In short, section 403(a) is designed to make plain that the provisions of the 1978 statute are not to affect cases commenced under the Bankruptcy Act and that these are to proceed with respect to both substantive and procedural matters in the same fashion as though the 1978 Act were not in effect.
Congress was aware in their consideration of the Bankruptcy Code that there would be conflicts arising as to matters pending at the time that the new legislation would be effective. This is evident when one refers to H.R.Rep. No. 595, 95th Cong. 1st Session 459 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6414 which contains the following comments by the House Judiciary Committee on Section 403:
Subsection (a) of this section similar to sections 276, 399, 526, and 686 of the Bankruptcy Act, continues case pending as of the effective date of the bill without change. The new law will not affect cases commenced under the old law. Those cases will proceed as though this Act did not take effect. The section applies to substantive as well as procedural matters, to matters concerned by Federal bankruptcy law as well as matters governed by State law.
*377Further, the Rules of Bankruptcy Procedure are still applicable under the Bankruptcy Code, unless they are in direct conflict with the Code. Rule 122 of the Bankruptcy Rules of Procedure provides:
When an order is entered in a Chapter X, XI, XII, or XIII case directing that the case continue as a bankruptcy case, the procedure shall be as follows:
(1) In all respects other than as provided in the following paragraphs, the ease shall be deemed to have been commenced as of the date of the filing of the first petition initiating a case under the Act and shall be conducted as far as possible as if no petition commencing a chapter case had been filed.
(2) Unless otherwise directed by the court, lists, inventories, schedules, and statements filed in the superseded ease shall be deemed to be the schedules and statement of affairs filed in the bankruptcy case pursuant to Rule 108 and in full compliance therewith .
Collier on Bankruptcy, 14th Ed., Vol. 12, Section 122.03 discussing Rule 122(2) states that: “The rule must be construed so that if any statements of assets and liabilities have been filed the presumption of compliance with Rule 108 applies subject to the court ordering more information.”
Therefore it is the conclusion of this court that the bankrupts are entitled to the exemptions effective on May 10, 1979, the date of the filing of the original petition in bankruptcy as provided for under Section 6 of the Bankruptcy Act and Ohio Revised Code 2329.73.
It appears to the Court that Donald Franklin Mosley, Sr. is the head of the household and the exemptions should be allowed under Case No. B-79-359A. However, the Court does find that should Donald Franklin Mosley, Sr. waive these exemption rights based upon the finding of this Court, Shirley Marie Mosley, the wife of Donald Franklin Mosely, Sr., would be entitled to claim these exemptions within 10 days of the entry of the waiver of the finding and order of this Court.
The Court further finds that the objection as filed by the Trustee to the Amended Schedule B-4 as filed on January 3, 1980 should be sustained and the bankrupts should be allowed the exemptions as claimed on May 10, 1979 and allowed by the trustee in the Report of Exempt Property filed by the Trustee on January 4, 1980, to which no exceptions have been taken by the bankrupts. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488854/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION DETERMINING DISCHARGE-ABILITY
ALEXANDER L. PASKAY, Bankruptcy Judge.
THIS IS, hopefully, the last chapter of a long, ongoing battle between a bankrupt and his former wife; a battle which initially culminated in a final decree of divorce. In conjunction with the divorce, the parties entered into a property settlement agreement which was executed by the Plaintiff and the Defendant on May 19,1970 and this is the document which is the basis of the present controversy presented to this Court by a complaint filed by Sharon Zoda Peters, the former wife of the Bankrupt.
The initial complaint contained two grounds. Count I set forth a claim of non-dischargeability which was based on the allegation that a certain judgment entered in favor of the Plaintiff and against the Bankrupt in the State Court for the amount of $2,775 represented a liability resulting from a willful, malicious tort, to wit: a willful, malicious injury to the property of another, therefore, according to the Plaintiff should be declared to be non-discharge-able by virtue of § 17a(8) of the Bankruptcy Act. In Count II, the Plaintiff sought an order denying the Bankrupt’s discharge under § 14c by charging that the Bankrupt concealed numerous assets from the Court and that accordingly, he was not entitled to a discharge by virtue of 14c(4).
The initial complaint was challenged by the Defendant and this Court dismissed the complaint without prejudice. In due course, the Plaintiff filed an amended complaint which sets forth only a claim of non-dischargeability on two different theories. The first, as mentioned earlier, based on the claim that the judgment represents a liability resulting from willful, malicious injury to the property of another. The second represents a claim of non-dischargeability based on an alleged liability resulting from a conversion of the property of the Plaintiff by the Bankrupt. The evidence presented on these claims at the final evidentiary hearing reveals the following:
On January 19, 1970, Henry George Zoda, the Bankrupt involved in this proceeding entered into a property settlement agreement with the Plaintiff, Sharon Zoda Peters, his then wife, in connection with the then pending proceeding instituted to dissolve the marriage (Pi’s Exh. # 1). The property settlement agreement provided inter alia that property which was then owned by them as tenants by the entireties and which consisted of four particular parcels described as Lots A, B, C and D, shall be distributed to the parties as follows: the Plaintiff was to receive the- sole and complete ownership of Lot D; the Bankrupt was to receive the sole ownership of Lot B together with all improvements thereon and was to have a life estate in Lots A and C with a remainder to the Plaintiff. The agreement further provided that the Plaintiff shall have at all times, the exclusive right to use and enjoy Lots A and C as pasture land during the life estate of the Bankrupt. The Agreement further provided that all personal properties tangible or intangible, owned by the parties separately or by the entirety shall be the sole and exclusive properties of the Bankrupt with some exceptions not relevant to this controversy. To effectuate this Agreement, the parties executed a quit claim deed on June 18,1970 whereby the Bankrupt and his then wife conveyed all rights, title and interest in Lots A and C to the Bankrupt, for life, and the remainder to the Plaintiff and her heirs.
*379It further appears that subsequent to the execution of the quit claim deed, there was a series of skirmishes between the parties from which there developed a heated, but good faith, dispute concerning the ownership of a chain link fence separating Lot A from Lot B and one separating Lot B from Lot C. Thus, in January of 1976, the Plaintiff filed a petition in the State Court for extraordinary relief and on January 25, 1973, obtained an order directing the Bankrupt to restore the chain link fence which he had removed and directing him to refrain from disturbing the status quo during the pendency of an appeal on the matter. On April 24, 1974, a mandate was entered by the appellate court. However, the question of the ownership of the fence was not resolved. It further appears that on February 15, 1976, the Bankrupt removed the chain link fence after having given notice to the Plaintiff of his intention to do so. The Plaintiff thereafter filed a motion for contempt in the State Court, a proceeding which resulted in the money judgment which is the subject of the instant controversy. Thereafter, the wife replaced the chain link fence with a barbed wire fence and in turn moved the gates which separated the properties, which prevented the Bankrupt, at least partly, from having access to Lot B owned by him exclusively.
The claim of non-dischargeability based on § 17a(2) and (8) which in pertinent part provides respectively as follows:
§ 17. Debts Not Affected by a Discharge
a. A discharge in bankruptcy shall release a bankrupt from all of his provable debts . . . except such as .
(2) are liabilities . . . . for willful and malicious conversion of the property of another .
(8) are liabilities for willful and malicious injuries to the . . . . property of another .
In order to sustain a claim of non-dis-chargeability under either of these Sections, the Plaintiff must not only establish with the requisite degree of proof that the bankrupt, in fact, converted or injured the property of the Plaintiff but that the Bankrupt did it both willfully and maliciously. 1A Collier on Bankruptcy, § 17.17 (14th ed. 1978). Certainly not all injuries or conversions are willful and malicious thus rendering the debt non-dischargeable, and the presence of the elements of willfulness and malice must be determined by considering all the facts and circumstances. Prudential Finance of N.O., La., Inc. v. Necaise, 192 So.2d 868 (La.App.1966); U. S. Fidelity & Guaranty Co. v. Tanna, 279 F.Supp. 396 (D.C.Colo.1968); Hunter v. Commercial Securities Co., 237 Miss. 41, 113 So.2d 127, 132 (1959); Kalvar Corp. v. Burrow, 493 S.W.2d 48 (Mo.App.1973).
Applying this standard to the facts in question, it is evident that the Plaintiff has failed to establish with the requisite degree of proof any willful and malicious intent on the part of the Bankrupt. Even assuming that the Bankrupt was guilty of conversion and he was guilty of injuring the property of another, which is by no way established by this record, it is clear that he acted in good faith and without malice. Therefore, the claim of non-dischargeability cannot be sustained on either of the theories advanced by the Plaintiff for the following reasons.
The property settlement is vague and unspecific as to the ownership of the fence as is the quit claim deed. Furthermore, the question of ownership of the fence was repeatedly litigated by the parties and has never been really resolved with finality. While it is true that the Bankrupt moved this fence earlier and was ordered to restore the same, an order which he complied with, it is without dispute that there was an ongoing controversy between the parties in the State Court with regard to the ownership of these particular fences. In light of this background, one would be hard pressed to conclude and find first, the absence of a bona fide dispute between the parties concerning the ownership of the fences and second, the willful, malicious intent which is required in order to sustain the claim of non-dischargeability on either of the theories advanced by the Plaintiff.
*380While one would be less than candid not to recognize that there is no love and affection left after the divorce between the parties and while the Defendant’s spirit might have been fueled by his ill feelings toward his former wife while fighting for his clear right to the fence in question, this alone is insufficient to establish the malicious intent to injure the properties of another, although it might have been sufficient to establish an intent to inflict some mental distress on his former wife. Equally, his motivation to remove the fence has no relevancy or bearing on the charge of conversion simply because the ownership of the fence has never been really established with finality and his dominion and control over the fence was asserted by the Defendant in good faith even though he knew that the removal of the fence would anger and upset his former wife.
Considering the foregoing, this Court is satisfied that the Plaintiff failed to sustain the burden placed on her to establish an essential element of a claim of non-dis-chargeability and, therefore, she is not entitled to the relief sought.
A separate final judgment will be entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488855/ | ORDER
LAWRENCE FISHER, Bankruptcy Judge.
This matter coming on to be heard upon the motion of the UNITED STATES OF AMERICA to dismiss the Chapter XII petition of Debtor, THORNHILL WAY I.
The Court having examined the pleadings filed in this matter and having received and *406reviewed the memoranda of law in support of the respective positions of the parties hereto, and the Court being fully advised in the premises:
The Court Finds:
1. The Debtor, THORNHILL WAY I, is an Illinois partnership.
2. At the time of the filing of the petition herein for an arrangement under Chapter XII of the Bankruptcy Act, Debtor, THORNHILL WAY I, was the sole beneficiary of The Exchange National Bank of Chicago, Land Trust No. 24671. The Exchange National Bank of Chicago, trustee under said Trust No. 24671, was then the legal and equitable owner of the real estate and improvements thereon, the development and operation of which property was the principal business of debtor.
3. The trust agreement entered into between the Debtor and The Exchange National Bank of Chicago as Trustee provides that the interest of the beneficiary thereunder and the rights conferred to such beneficiary thereunder shall be deemed to be personal property and that said beneficiary shall have no right, title, or interest in or to any position of the real estate which was the subject of the said trust, either legal or equitable.
4. Subsequent to the filing of the Motion of the UNITED STATES OF AMERICA to dismiss the Chapter XII petition herein, Debtor, THORNHILL WAY I, exercised its power of direction under Trust No. 24671 and caused The Exchange National Bank of Chicago, as Trustee aforesaid to convey to it the legal title to the subject real estate.
5. The subject real estate was encumbered by a mortgage dated February 1, 1971, by and between The Exchange National Bank of Chicago, as Trustee under Trust No. 24671, mortgagor, and Draper & Kramer, Inc., mortgagee, recorded February 10, 1971, as Document R71-1939 in the office of Recorder of Deeds, DuPage County, Illinois.
Subsequently, Draper and Kramer, Incorporated, for good and valuable consideration assigned said mortgage to American Federation of Labor and Congress of Industrial Organizations Mortgage Investment Trust by written instrument dated September 24, 1973, and recorded September 26, 1973, as Documents R73-61582 in the office of Recorder of Deeds, DuPage County, Illinois.
Said mortgage, from its execution was insured pursuant to the National Housing Act as amended.
Thereafter, American Federation of Labor and Congress of Industrial Organizations Mortgage Investment Trust elected, under the provisions of the National Housing Act, as amended, upon default to assign the mortgage and the underlying credit instrument to the Secretary of Housing and Urban Development and did so assign said mortgage and underlying credit instrument to the Secretary of Housing and Urban Development by written instrument dated February 3, 1975, and recorded in 1975 as Documents R75-6057 in the office of Recorder of Deeds, DuPage County, Illinois.
THE UNITED STATES OF AMERICA, on behalf of the Secretary of Housing and Urban Development, brought a foreclosure action in the United States District Court for the Northern District of Illinois, Case No. 76 C 2096 entitled The United States of America vs. The Exchange National Bank of Chicago, as Trustee under Trust No. 24671 and Thornhill Way I, an Illinois partnership. On February 10, 1977, the Court therein entered its order placing the United States of America through the Secretary of Housing and Urban Development in possession of the subject real estate, and pursuant thereto the government went into and is now in possession of said real estate.
6.The United States of America, by and through the Secretary of Housing and Urban Development is the only secured creditor holding a security interest in the real estate which is the subject matter of the Chapter XII petition herein.
The Court Concludes and Further Finds:
1. At the time of the filing of the petition for an arrangement under Chapter *407XII of the Bankruptcy Act, Debtor, THORNHILL WAY I, was not a debtor who could file a petition under Chapter XII of the Bankruptcy Act pursuant to Section 421 and 422 thereof either in a pending bankruptcy proceeding or as an original petition.
Section 406(6) of the Bankruptcy Act provides as follows:
“(6) “debtor” shall mean a person, other than a corporation as defined in this Act, who could become a bankrupt under Section 4 of this Act, who files a petition under this chapter and who is the legal or equitable owner of real property or a chattel real which is security for any debt, but shall not include a person whose only interest in property proposed to be dealt with by the arrangement is a right to redeem such property from a sale had before the filing of such petition;”
THORNHILL WAY I, as beneficiary of The Exchange National Bank of Chicago, Trust No. 24671, an Illinois land trust was not then the legal or equitable owner of real property or a chattel real within the meaning and purview of Section 406(6) of the Bankruptcy Act. The interest of THORNHILL WAY I in The Exchange National Bank of Chicago, Land Trust No. 24671 is a beneficial interest in a land trust, which under Illinois law delineating its characteristics and the right and obligations of the owners of such property interests, is determined to be personal property and not an interest in real property or a chattel real within the meaning and purview of Section 406(6) of the Bankruptcy Act.
Debtor’s acquisition of the legal title to the subject real estate, during the pendency of this ease, whether this occurred prior or subsequent to the filing of the motion to dismiss cured this jurisdictional defect and thereby qualified THORNHILL WAY I as a debtor who may file or proceed with a petition under Chapter XII of the Bankruptcy Act pursuant to either Section 421 or 422 of the Bankruptcy Act.
2. Chapter XII of the Bankruptcy Act, expressly excludes from its application and effect, creditors of any debtor under a mortgage insured pursuant to the National Housing Act as amended.
Section 517 of the Bankruptcy Act provides as follows:
“Nothing contained in this chapter shall be deemed to affect or apply to the creditors of any debtor under a mortgage insured pursuant to the National Housing Act and Acts amendatory thereof and supplementary thereto; nor shall its provisions be deemed to allow extension or impairment of any secured obligation held by Home Owners’ Loan Corporation or by any Federal Home Loan Bank or member thereof.”
The court makes no distinction in the application of Section 517 of the Bankruptcy Act between the original mortgagee under the subject mortgage, Draper and Kramer, Incorporated, its assignee, American Federation of Labor and Congress of Industrial Organizations Mortgage Investment Trust and its subsequent assignee, the original insurer under said mortgage, the United States of America by and through the Secretary of Housing and Urban Development. Each of these corporations, trusts and legal entities fall within the purview of the exclusions from affect or application of Chapter XII of the Bankruptcy Act. Further, such exclusion applies as to the United States of America by and through the Secretary of Housing and Urban Development both before its acquisition of said mortgage as insurer thereof and after its acquisition of said mortgage, upon default and assignment by American Federation of Labor and Congress of Industrial Organizations Mortgage Investment Trust, as owner of said mortgage. The phrase “mortgage insured pursuant to the National Housing Act . ” is descriptive of the character of the mortgages and obligations secured thereby which are without the affect and application of Chapter XII of the Bankruptcy Act and is not intended to distinguish in its effect the status of the UNITED STATES OF AMERICA as the insurer and as the owner thereof.
3. Inasmuch as the UNITED STATES OF AMERICA by and through *408the Secretary of Housing and Urban Development is the sole creditor with a security interest in the subject real estate, and inasmuch as the court has indicated that under the circumstances of this case, Chapter XII of the Bankruptcy Act cannot affect or apply to it, there is no necessity to discuss or to decide whether this Chapter XII proceeding would be appropriate where it was the one and only creditor holding a debt secured by real estate and where it refused to accept any plan, proposed or contemplated, that would constitute an arrangement of the debt owing to it. In effect, because of the application of the provisions of Section 517 of the Bankruptcy Act, there is no class of creditors holding debt secured by real estate for which a plan of arrangement could be proposed; and as a consequence, this Chapter XII proceeding is inappropriate to this debtor and should be dismissed.
IT IS THEREFORE ORDERED, ADJUDGED, AND DECREED that the motion of the UNITED STATES OF AMERICA to dismiss the Chapter XII petition of Debtor, THORNHILL WAY I, be, and the same is hereby allowed and that the Chapter XII petition herein and this case be and the same are hereby dismissed.
Affirmed, In re Thornhill Way I, December 19,1979 (unpublished opinion of District Judge Joel Flaum). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488856/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
In this case, we must decide whether to implement a provision of a post-petition agreement between a Chapter XIII debtor and a secured creditor which provides for relief from the automatic stay imposed by Rule 13-401 of the Rules of Bankruptcy Procedure, without protest or appeal by the debtor, in the event of his failure to comply with the agreement’s terms. We hold, under the facts of this case, that the provision will be given effect and, therefore, that we will modify the stay thereby enabling the secured creditor to proceed with foreclosure of its interest in the property 1.
The agreement in question was executed on December 29, 1978, ten days after the secured creditor, Liberty Federal Savings and Loan Association (“Liberty Federal”) filed its first complaint seeking relief from the stay to enable it to proceed with foreclosure of its mortgage on the debtor’s residence.2 The .agreement provided that, within six months of its execution, the debt- or, Samuel C. Ratmansky (“Ratmansky”) would cure all arrearages owing to Libérty Federal, would pay all real estate taxes due on the property no later than January 15, 1979, and, thereafter, would resume current debt service payments as required by the terms of the mortgage and promissory note.3 The final clause of the agreement provided:
The Honorable Court to remove stay of Sheriff’s sale and permit sale of said real estate without protest or appeal by debt- or, in the event debtor fails to comply with any of the terms or conditions of this agreement and/or the mortgage or note.
Ratmansky failed to make several payments when due and, on July 13, 1979, Liberty Federal filed the current complaint for leave to proceed with foreclosure.4
While the final clause of the agreement is clearly a waiver of any right to seek a stay of foreclosure in the event of a default, Ratmansky offers several arguments in defense of his position that his waiver should not be given effect. He asserts that the complaint fails to state a cause of action upon which relief may be granted, that any right to assert a breach of the agreement was waived by acceptance of a payment well beyond its due date,5 and that equitable considerations militate against allowing foreclosure. We find all of these contentions unpersuasive.
A secured creditor has the right to seek relief from the automatic stay as pro-*531vided by Rule 13-401(d) of the Rules of Bankruptcy Procedure.6 The decision to grant or deny such relief lies within the sound discretion of this court. Hallenbeck v. Penn Mutual Life Insurance Co., 323 F.2d 566, 573-574 (4th Cir., 1963). Generally, reclamation may properly be denied in the following circumstances:
(1) General equitable considerations, including the debtor’s good faith ability to pay, should favor restraining foreclosure. (2) The injunction against foreclosure must be necessary to preserve the debt- or’s estate or carry out the Chapter XIII Plan. (3) The injunction must not impair the security of the lien. (4) The owner of the secured indebtedness must not be required to accept less than the full periodic payments specified in the contract, [footnotes omitted]. Thompson v. Ford Motor Credit Co., 475 F.2d 1217, 1218-1219 (5th Cir., 1973).
Ratmansky’s argument that, by accepting a payment after its due date, Liberty Federal has waived its right to assert a breach of the agreement is clearly without basis. A mortgagee’s conduct, not amounting to a general course of dealing, in excusing prior delays in making payments is not a waiver of its right to insist on prompt payment in accordance with the terms of the mortgage agreement. 59 C.J.S. Mortgages § 501 (1949). Pennsylvania law is in accord. First Federal Savings and Loan Association v. Street Road Shopping Center, Inc., 68 D. & C.2d 751, 755 (1975). Steinman v. La Charty Hotels Co., 355 Pa. 444, 447, 50 A.2d 297, 298 (1947). Clearly proof of the acceptance of a single late payment is insufficient to establish any course of dealing between the parties.
Ratmansky’s other arguments are equally unavailing. He contends that he still has a substantial equity in the property,7 that more funds are available to apply toward mortgage payments,8 and that foreclosure would precipitate abandonment of his Wage Earner Plan. We do not think these considerations merit further imposition of the stay under the circumstances.
This is not a case where a secured creditor seeks relief from the automatic stay immediately after a Chapter XIII petition is filed. Rather, the default having occurred after Ratmansky entered into a post-petition agreement with his mortgagee, the case is analagous to that involving a default in payments due to a secured creditor pursuant to a Wage Earner Plan. Ratmansky voluntarily entered into a valid and binding agreement with Liberty Federal, agreeing that, should he “fail to comply with any of the terms and conditions” of said agreement, Liberty Federal was free to proceed with foreclosure “without protest or appeal by the debtor.” Having waived the right to object, and no equitable considerations arising in the debtor’s favor, we will allow Liberty Federal’s complaint.
. The property is located at 1706 East Willow Grove Avenue, Montgomery County, Pennsylvania.
. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. More specifically, the agreement provided:
1. Debtor to pay all real estate taxes due on said property no later than January 15, 1979.
2. Debtor to resume current payments in compliance with [the] mortgage and note, on January 19, 1979.
3. Payment of all monies due mortgage, including but not limited to Principal, interest, late charges, counsel fees, and costs, as follows:
(a) Two thousand five hundred ($2,500.00) Dollars on or before April 1, 1979.
(b) Two thousand five hundred ($2,500.00) Dollars on or before May 1, 1979.
(c) Balance of all and any monies due on or before June 15, 1979.
. At the trial, it was demonstrated that the debtor was delinquent in the amount of $4,096.01.
. It is undisputed that the payment of $2,500 due on April 1, 1979, was not paid until April 30, 1979.
.Rule 13-401(d) states:
On the filing of a complaint by a creditor who has timely filed his claim or who is secured by an estate in real property or chattels real seeking relief from a stay provided by this rule, the bankruptcy court shall, subject to the provisions of subdivision (e) of this rule, set the trial for the earliest possible date, and it shall take precedence over all matters except older matters of the same character. The court may, for cause shown, terminate, annul, modify, or condition such stay. A party seeking continuation of a stay against lien enforcement shall show that he is entitled thereto.
. This was the fifth defense stated in Ratman-sky’s Answer to Liberty Federal’s Complaint. It asserted that the mortgage balance was approximately $34,000 and that the value of the debtor’s residence was at least twice that amount. But no evidence of either amount was offered at the hearing.
. The fourth defense stated in Ratmansky’s answer was that more than six months had passed since the first meeting of creditors and, within that time, scheduled creditors with claims totalling $6,758 had failed to file proofs of claim. Since they were thereby barred from sharing in the distribution, those funds would be available to pay Liberty Federal. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488857/ | MEMORANDUM DECISION
PEDER K. ECKER, Bankruptcy Judge.
This case is before the Bankruptcy Court pursuant to a Complaint filed under the old Bankruptcy Act by the Debtor against a collection agency, assignee of a bank holding Plaintiff-Debtor’s and his co-debtor’s promissory note. The Bankruptcy Court, having reviewed the briefs, orders that the Complaint be dismissed for the reason that this Court lacks jurisdiction.
On April 14, 1978, the First National Bank lent Debtor the sum of $3,000.00 and received in return a promissory note signed by Debtor and Joan Kay Boehnke, co-debt- or. Debtor filed a Petition for relief under Chapter XIII of the Bankruptcy Act, 11 U.S.C. Section 1001, etc., and a Plan on July 11, 1978. Debtor included in the Petition, under Schedule A-3, the following debt: FIRST NATIONAL BANK, 100 South Phillips, Sioux Falls, SD 57102, and JOANIE BOEHNKE, 1310 South 10th, Sioux Falls, SD 57105, Promissory Note.
On July 24,1978, the First National Bank filed its Proof of Claim rejecting, in Paragraph 12, the Debtor’s Plan. Following the First Meeting of Creditors on August 2, 1978, the Debtor’s Plan was confirmed without modification. Article 4 of the Confirmed Plan provided that, “If the creditors accept Plan and same is confirmed by the Court, as long as Plan is not in default, creditors agree not to also collect payment from co-debtor.”
The First National Bank assigned the promissory note to Defendant on August *60816, 1978. Defendant filed suit against co-debtor for payment of the note. Debtor filed the aforementioned Complaint, alleging that the Confirmed Chapter XIII Plan precluded any state court action against Joan Boehnke on the note.
Counsel for the parties presented several issues to this Court, including the issue presented by Debtor’s counsel of whether an assignee of a creditor is prevented by the doctrine of res judicata from suing a co-debtor in state court on a promissory note when the confirmed plan, which assignor rejected at the time it filed its proof of claim, provided that if creditors accepted the plan, then, as long as the plan was not in default, creditors agreed not to also collect payment from co-debtor. Before the Bankruptcy Court can consider the issue of res judicata presented by Plaintiff, this Court must decide whether the Bankruptcy Court has jurisdiction over the matter in question.
Section 611 of the Bankruptcy Act, 11 U.S.C. Section 1011, sets forth the jurisdiction of the Bankruptcy Court under Chapter XIII. It provides as follows:
“Where not inconsistent with the provisions of this chapter, the court in which the petition is filed shall, for the purposes of this chapter, have exclusive jurisdiction of the debtor and his property, wherever located, and of his earnings and wages during the period of consummation of the plan.”
In re Shelor, 391 F.Supp. 384 (W.D.Wa.1975), interpreted Section 611 of the Bankruptcy Act and is dispositive on the issue of whether this Court has jurisdiction. In Shelor, the District Court held that a creditor’s suit against a co-maker of a note was not subject to restraint by the Bankruptcy Court even where the confirmed Chapter XIII Plan required the creditors to seek approval of the Bankruptcy Court before proceeding. The Court, citing Section 611 of the Bankruptcy Act, noted that the suit “did not directly involve the bankrupt, his property or his wages and earnings and was thus not subject to restraint by the Bankruptcy Court.”.
In relying on Section 611 of the Bankruptcy Act and In re Shelor, this Court finds that it must dismiss Debtor’s Complaint for lack of jurisdiction. The Court lacks jurisdiction to decide a Complaint where the Debtor or his property are not involved.
However, even were this Court entitled to assume jurisdiction, under Schraer v. G.A.C. Finance Corporation, 408 F.2d 891 (6th Cir. 1969), Defendant would be free to pursue the co-debtor.
In Schraer, the Court of Appeals for the Sixth Circuit held that a creditor was restrained from proceeding against a co-signer of a note where that creditor had specifically adopted a plan containing a provision that prohibited creditors from pursuing co-debtors as long as the plan was not in default. The Court determined that such a provision is not inconsistent with a Chapter XIII Wage Earner Plan under 11 U.S.C. Section 1046(7). The Court, however, went on to say that, “while it is clear that he (referring to creditor) is bound by the adoption of a plan by a proper majority of the unsecured creditors and is entitled to receive dividends thereunder, that is not to say that his rights are in any way altered by the inclusion in the plan of a prohibition against pursuing co-debtors.”. Further in Schraer, the Court states that, “The creditor who is unwilling to look only to the Wage Earner Plan for payment need only reject or ignore the invitation to accept it in order to retain his rights against co-signers or co-makers.”.
The First National Bank rejected Debt- or’s Plan when it filed its Proof of Claim. Under Schraer, the First National Bank and its assignee, Defendant, are free to pursue the co-debtor in state court.
During the pendency of this suit, the Debtor was in a serious automobile accident which resulted in a modification of the Debtor’s Plan. To prevent the creditor from proceeding against the co-debtor would be to allow the co-debtor to escape indefinitely the obligation she willingly entered.
*609For the aforementioned reasons, the Bankruptcy Court orders Debtor’s Complaint dismissed.
The Defendant’s counsel shall submit Findings, Conclusions and Judgment consistent with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488858/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The issue presented to us is whether a complaint brought by the trustee of a bankrupt to recover money, which allegedly belongs to the bankrupt, from a corporation and its parent corporation should be dismissed for lack of summary jurisdiction and for failure to state a cause of action against the parent corporation. We conclude that an evidentiary hearing must be held in order to determine whether we have summary jurisdiction and we will allow the trustee plaintiff to amend his complaint, if he can, in order to allege sufficient facts to state a cause of action against the parent corporation.1
On June 19, 1979, the trustee in bankruptcy (“trustee”) for David M. Hunt Con-*94struetion Company (“the bankrupt”) filed a complaint against Olney Federal Savings and Loan Association (“Olney”) and Tabor Service Corporation (“Tabor”) seeking to recover certain funds allegedly due the bankrupt under a contract entered into on August 6, 1973, between the bankrupt and Tabor by which the bankrupt was to construct a building for Tabor.2 The building was allegedly completed 3 and the complaint asserts that the sum of $100,686.21 thereupon became due to the bankrupt from Tabor.4
The trustee further alleges in his complaint that the defendant Olney was liable for the above sum of money although Olney was not a signatory to the above contract. This liability is premised on the allegation that Tabor is a wholly owned subsidiary of Olney and that “Tabor is so controlled and dominated by its parent, defendant bank [Olney], that it exists as a mere instrumentality for the benefit of defendant bank.” 5
Both defendants filed motions to dismiss the trustee’s complaint. Tabor’s motion seeks a dismissal for lack of summary jurisdiction.6 Olney’s motion seeks a dismissal for both lack of summary jurisdiction and for failure to state a cause of action against it.7
1. Lack of Summary Jurisdiction over Tabor and Olney.
Both defendants assert that we are without jurisdiction over the subject matter of the instant complaint because the funds in question were not in the actual or constructive possession of the bankrupt at the time it filed its voluntary petition in bankruptcy.8 The law is settled that where a controversy involves property that is in the actual or constructive possession of the bankrupt at the time of the filing of the petition in bankruptcy, the bankruptcy court has jurisdiction to summarily adjudicate all rights and claims pertaining to that property;9 but where the controversy involves property that is in the possession of a third party who asserts a substantial adverse claim to that property, the bankruptcy court does not have jurisdiction to summarily decide that party’s claim to the property without his consent.10
In the instant case, since it is apparent from the complaint that the property in controversy was not within the actual or constructive possession of the bankrupt at the time of the filing of the petition in bankruptcy,11 the question presented then is whether Tabor or Olney, the parties in whose hands the property is alleged to be,12 has a substantial adverse claim to that property.
In discussing the problem of determining whether a third party has a substantial claim to property in its possession, the Supreme Court has stated:
. the court is not ousted of its jurisdiction by the mere assertion of an *95adverse claim; but, having the power in the first instance to determine whether it has jurisdiction to proceed, the court may enter upon a preliminary inquiry to . determine whether the adverse claim is real and substantial or merely colorable. And if found to be merely colorable the court may then proceed to adjudicate the merits summarily; but if found to be real and substantial it must decline to determine the merits and dismiss the summary proceeding.13
In the case at bar we conclude that such a preliminary evidentiary hearing must be had to determine if we have summary jurisdiction to decide the issues presented.
In its present posture we are faced by a complaint by the trustee seeking to recover a sum of money allegedly in the hands of the defendants and which professedly belongs to the bankrupt. The defendants did not file answers to the complaint but, instead, filed motions to dismiss. In their motions and in their memoranda of law in support of their motions, the defendants have made no assertion that they have any adverse claim to the money.14 Thus, as the controversy stands before us, the defendants have only made a bare contention that we lack summary jurisdiction. As noted above, more than that is required to divest a bankruptcy court of its jurisdiction. Consequently we cannot at this time grant the defendants’ motions to dismiss for lack of summary jurisdiction.
However, since we would be unable to proceed with this case if we, in fact, lacked jurisdiction, we conclude that we must hold an evidentiary hearing to determine if the defendants have a substantial adverse claim to the funds at issue. In this regard, we should note that the defendants need not prove that their claim to the property will be ultimately successful; they need only demonstrate that their claim is substantial and not merely colorable.15 In other words, it is not enough for the defendants to merely assert that they have an adverse claim to the property; they must show that their claim has some basis in fact and some color of law.16 It will then be our duty to examine the evidence and weigh its credibility before determining if the adverse claim is substantial.17
Further, it will not be sufficient for the defendants at the hearing to merely argue that we are without summary jurisdiction because this controversy is based on a contract claim. The cases which the defendants cite for that proposition are clearly distinguishable from this case on the facts which are before us so far. The cases cited involved complaints based on contracts in which the defendants disputed the claim itself and/or the amount of that claim.18 That amounted to an adverse claim by *96those defendants. In the instant case, we have no indication from the defendants that they dispute the trustee’s claim or the amount of that claim. In fact, the trustee has offered evidence that one of the defendants, Tabor, has admitted it owes the bankrupt part of the sum in controversy, i. e., the $65,686.21 based on the savings provision of the contract.19 Tabor has not attempted to controvert this evidence. With respect to the rest of the money, the $35,000 which the trustee alleges was placed in escrow, Tabor does assert that it has a substantial adverse claim thereto and that it has evidence to that effect, but that evidence was not presented to us (nor was Tabor required to do so in its motion to dismiss) so that we could determine if Tabor’s claim was substantial.20 However, Tabor will have the opportunity to offer any evidence which it might have on this matter.
Defendant Olney asserts an additional ground for its argument that we lack summary jurisdiction: that if the property which the trustee is seeking is in Olney’s hands, Olney has a substantial adverse claim to it, namely, that it belongs to Olney, not to Tabor.21 However, if we accept the trustee’s piercing-the-corporate-veil theory as true, which we must in a motion to dismiss,22 then it appears that Olney’s mere assertion that the money belongs to it is not a substantial claim; in fact, if Olney and Tabor are one, Olney would not have a substantial adverse claim unless Tabor had one. As stated above, on the facts before us we cannot say that Tabor has a substantial adverse claim. However, like Tabor, Olney will have the opportunity, at the hearing to be held, to present some evidence that it has a substantial adverse claim (which might include evidence to the effect that this is not a proper case in which to pierce the corporate veil).
2. Failure of Complaint to State Cause of Action Against Olney.
The defendant Olney also asserts that we should dismiss the trustee’s complaint as against it because the complaint fails to state a cause of action against it.23 To support its position, Olney relies on the case of George A. Davis, Inc. v. Camp Trails Co., 447 F.Supp. 1304 (E.D.Pa.1978) in which the district court dismissed a complaint containing an allegation similar to the one which the trustee asserts against Olney.24 We do not believe, however, that Davis requires us to dismiss the instant complaint. The federal policy with respect to pleadings is to be liberal with respect to allowing amendments,25 and in Davis the dismissal of the complaint was “without prejudice to the plaintiff’s right to file an amended complaint containing further alle*97gations pertinent to the application of the ‘instrumentality rule’ in this case.”26
In light of our conclusion to hold an evi-dentiary hearing on the issue of summary jurisdiction, we will also allow the trustee to amend his complaint to allege sufficient facts in support of his allegation that Olney is liable for the bankrupt’s funds that either Tabor or Olney hold.
. This opinion constitutes the findings of fact the Rules of Bankruptcy Procedure. and conclusions of law required by Rule 752 of
. See contract attached as exhibit A to the complaint of Leon Katz, trustee for David M. Hunt Construction Company v. Olney Federal Savings and Loan Association and Tabor Service Corporation, filed June 19, 1979 [hereinafter cited complaint].
. See complaint, at 1111 8-10.
. See id. at ¶¶ 6-16 and 17-20. The trustee alleged that there are two sums of money due: $65,686.21 due under the savings provision of the contract and $35,000 due from Tabor because it had been held in escrow under a separate agreement pending the completion of a second tower in the apartment building which was never built. Id.
. Id. at ¶ 5.
. See Motion to Dismiss and Memorandum of Law in Support of Defendant Tabor’s Motion to Dismiss, filed July 19, 1979, and August 13, 1979, respectively.
. See Motion to Dismiss and Memorandum of Law in Support of Defendant Olney’s Motion to Dismiss, filed July 19, 1979, and August 13, 1979, respectively.
. See notes 6 & 7 supra.
. See 2 Collier on Bankruptcy § 23, ¶ 23.04 (14th ed. 1978) and cases cited therein.
. Id.
. See complaint at ¶ 116-16 and 17-20 and 21-24.
. Id.
. Harrison v. Chamberlin, 271 U.S. 191, 194, 46 S.Ct. 467, 468, 70 L.Ed. 897 (1926). See also, Cline v. Kaplan, 323 U.S. 97, 65 S.Ct. 155, 89 L.Ed. 97 (1944); Taubel-Scott-Kitzmiller Co., Inc. v. Fox, 264 U.S. 426, 44 S.Ct. 396, 68 L.Ed. 770 (1924); Mueller v. Nugent, 184 U.S. 1, 22 S.Ct. 269, 46 L.Ed. 405 (1902); Louisville Trust Co. v. Cominger, 184 U.S. 18, 22 S.Ct. 293, 46 L.Ed. 413 (1902); In re Meiselman, 105 F.2d 995 (2d Cir. 1939); In re Scranton Knitting Mills, Inc., 21 F.Supp. 227 (M.D.Pa.1937).
. See notes 6 & 7 supra.
. Harrison v. Chamberlin, 271 U.S. 191, 195, 46 S.Ct. 467, 469, 70 L.Ed. 897 (1926). See also, cases cited in note 13 supra.
. Mueller v. Nugent, 184 U.S. 1, 15, 22 S.Ct. 269, 275, 46 L.Ed. 405 (1902). See also, cases cited in note 13 supra.
. See e. g., In re Kansas City Journal-Post Co., 144 F.2d 819 (8th Cir. 1944) cert. denied 323 U.S. 807, 65 S.Ct. 559, 89 L.Ed. 644 (1945); In re Gallis, 115 F.2d 626 (7th Cir.), cert. denied, 312 U.S. 704, 61 S.Ct. 808, 85 L.Ed. 1137 (1941); Autin v. Piske, 24 F.2d 626 (5th Cir.), cert. denied, 277 U.S. 601, 48 S.Ct. 562, 72 L.Ed. 1009 (1928).
In Autin v. Piske, the Court of Appeals for the Fifth Circuit stated that the claimant’s “testimony in regard to [what happened to the money he had which belonged to the bankrupt’s estate] was so vague and indefinite of itself, and so improbable, that it is unworthy of belief, and the referee was justified in rejecting it entirely.” 24 F.2d at 627.
. See cases cited at page 2 of Memorandum of Law in Support of Defendant Tabor’s Motion to Dismiss, filed August 13, 1979.
. See letter from the president of Tabor dated April 20, 1979, attached as exhibit A to plaintiff’s Brief Contra to Defendant, Tabor’s, Motion to Dismiss for Lack of Jurisdiction, filed September 26, 1979.
. See Memorandum of Law in Support of Defendant Tabor’s Motion to Dismiss, at 4 and 5, filed August 13, 1979. In its Memorandum of Law Tabor stated that certain letters were attached as evidence that it has a substantial adverse claim. However, those letters were not so attached. Id.
. See Memorandum of Law in Support of Defendant Olney’s Motion to Dismiss, at 5-8, filed August 13, 1979.
. See, e. g., Frederick Hart & Co., Inc. v. Recordgraph Corp., 169 F.2d 580 (3rd Cir. 1948); Hutchison v. New Amsterdam Cas. Co., 13 F.R.D. 175 (W.D.Pa.1952).
. See Motion to Dismiss and Memorandum of Law in Support of Defendant Olney’s Motion to Dismiss, filed July 19, 1979, and August 13, 1979, respectively.
. George A. Davis, Inc. v. Camp Trails Co., 447 F.Supp. 1304, 1308 (E.D.Pa.1978).
. See Rule 15(a) of the Federal Rules of Civil Procedure; Wright, Federal Courts 310-12 (3d ed. 1976).
Rule 15(a) allows a party to amend his pleading once as a matter of course at any time before a responsive pleading is served. Since a motion to dismiss for failure to state a cause of action is not a responsive pleading, a party may amend after such a motion has been served. Wright at 310. Even if such a motion to dismiss is granted, the party has a right to file an amended complaint. Id.
. George A. Davis, Inc. v. Camp Trails Co., 447 F.Supp. 1304, 1308 (E.D.Pa.1978). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488859/ | *140MEMORANDUM AND ORDER
ROBERT L. EISEN, Bankruptcy Judge.
Throughout the course of this litigation the debtor corporations have repeatedly alleged that the debtors were fraudulently induced into the execution of leases for Golf Mill Nursing Home and Plaza Nursing Center. Plaintiff lessors, Central National Bank, et al. have now moved this court to make a summary finding on the issue of fraud. In support of their motion, plaintiffs have produced a release, which is signed by the principals of the debtor corporations, and supporting documents. Pursuant to the terms of the release, the principals of the debtors have released all claims against the plaintiffs, including all claims of fraudulent inducement and/or misrepresentation, which could have arisen from the negotiation and execution of the subject leases and which were known at the time the release was executed.
In response to the plaintiffs’ motion, the debtors challenge the validity of the release. More specifically, debtors contend that the release is unenforceable since:
1. The release is not signed by the debtors; 2. The plaintiffs fraudulently induced debtors’ principals to execute the release; 3. The release fails for want of consideration.
1. Debtors maintain that the absence of corporate signatures on the release renders the release unenforceable with respect to the debtor corporations. Debtors’ position is paradoxical at best. By raising the issue of fraud, debtors seek to avoid the terms of the leases negotiated with plaintiffs. These leases were negotiated by debtors’ principals before the debtors were organized as corporations. With respect to the issue of fraudulent inducement, therefore, debtors identify the actions of their principals as actions of their own.
Turning to the release in dispute, the release was also negotiated and executed by all the principals of the debtors. In contrast to their position on the issue of fraudulent inducement, however, the debtors now seek to avoid the effect of the release by interposing a legal gap between the debtors and their principals. This position is simply untenable.
The effect of a release must be determined by reference to the terms of the release and the intentions of the parties. Gladings v. Laughlin, 51 Ill.App.3d 694, 9 Ill.Dec. 173, 175, 366 N.E.2d 430, 432 (1977). According to the unambiguous terms of the release in the instant case, the debtor corporations as such, as well as all the debtors’ principals, explicitly released all claims against plaintiffs. Inasmuch as this unequivocal release was executed by all of the debtors’ principals, this court finds, as a matter of law, that the parties intended to bind both the debtor corporations and their respective principals by the terms of the release.
2. Debtors further contend that plaintiffs obtained the signatures of debtors’ principals through fraud. The thrust of debtors’ argument is that Rabbi Nayman, who is one of the plaintiffs, and, apparently, a religious leader for some of the debtors’ principals, improperly used his spiritual influence over the debtors’ principals in order to induce them to sign the release.
This court simply cannot accept the debtors’ allegations. The debtors’ principals alleged, prior to the execution of the release, that the plaintiffs fraudulently induced them to enter the original lease. Indeed, it was these allegations which prompted plaintiffs to negotiate for a release. Furthermore, the specific mode of fraud which is alleged to have occurred with respect to the lease is precisely that mode of fraud which the debtors now allege in relation to the release, i. e. that Rabbi Nayman improperly used his spiritual influence over debtors’ principals in order to induce them to sign. To suggest that debtors’ principals were duped by Rabbi Nay-man into signing the release despite the fact that the principals had, prior to the negotiation of the release, consistently alleged fraud on Rabbi Nayman’s behalf is a bit incredible.
The debtors’ principals are sophisticated in business relations. Throughout negotia*141tions for the release, debtors’ principals were represented by counsel. Pursuant to an agreement which was executed with and in consideration for the release, debtors were given substantial financial benefits by the plaintiffs. Indeed, according to the deposition of Mr. Osina, who was among those who negotiated the release for debtors, the debtors executed the release in order to maintain possession of the nursing homes. Osina deposition 336-348. Based on the foregoing, it is the opinion of this court that no viable issue exists with respect to fraudulent inducement in the execution of the release.
3. Finally, debtors contend that the release fails for lack of consideration. Debtors argue that plaintiffs covenanted, in consideration for the release, to fulfill all obligations owed by plaintiffs under the original lease. The debtors claim that since plaintiffs have not fulfilled these covenants, the release fails for lack of consideration.
Pursuant to the unambiguous language of the release, the performance of plaintiffs’ obligations under the original leases is not an element of consideration for the release. The only language in the release that refers to plaintiffs’ obligations under the original leases states:
. O.M.K. Corporation, an Illinois corporation; K.M.O. Corporation, an Illinois corporation; ... do hereby RELEASE and FOREVER DISCHARGE the CENTRAL NATIONAL BANK IN CHICAGO, ... of and from any and all claims of every kind including any existing claims for fraudulent inducement, misrepresentation or omissions, but excluding from this release all obligations, covenants, and undertaking of the respective lessors under said leases and option agreements.
Contrary to debtors’ claims, the language does not make plaintiffs’ performance of the covenants in the leases an element of consideration. Rather, this language merely removes the covenants of the original leases from the operation of the release. Thus, any claims that debtors have for violations of those covenants is not barred by the release. However, a violation of those covenants will not affect the enforceability of the release.
A careful examination of the release and agreement, and the testimony in the record compels the conclusion that debtors were granted a more lenient payment schedule in return for the release. Debtors do not allege that plaintiffs have failed to adhere to the payment schedule outlined in the agreement. Therefore, there has been no failure of consideration.
It is therefore the opinion of this court that:
1. Debtors are precluded from raising the issue of fraud in relation to the leases between debtors and plaintiffs, and,
2. No further testimony on this issue may be presented in this matter. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488860/ | H. F. WHITE, Bankruptcy Judge.
Greg Scott Breckenridge and Cathy Lee Breckenridge on October 4, 1979 filed a voluntary joint petition in bankruptcy seeking relief as provided for under the Bankruptcy Code and a discharge of their debts under 11 U.S.C. Section 727.
An interim Trustee was appointed and City Bank of Kent was notified of said proceedings, said creditor is also known as AmeriTrust of Portage County. Said creditor was scheduled as a secured creditor with a mortgage on a 1974 Plymouth Duster 2-door motor vehicle. The amount of the original debt was $2,880.53. A meeting of creditors under Section 341(a) was held on October 23,1979 and Harold Corzin, interim Trustee, became the Trustee.
On November 19, 1979 a motion was filed by AmeriTrust of Portage County to approve a revivor agreement entered into between the debtor and said creditor on November 10, 1979. This Court on December 12,1979 scheduled a hearing as provided for under 11 U.S.C. 524(d) to be held on December 27, 1979 which was then adjourned to January 11, 1980. At said hearing, pursuant to Section 524(d), the debtors were advised of their rights as required by the Bankruptcy Code.
The debtors indicated to the Court that they desired to rescind the agreement entered into on November 10,1979. The creditor objected to the debtors rescinding the contract as their security, .the 1974 motor vehicle, subsequent to the signing of the reaffirmation agreement was destroyed.
The Court upon the testimony and evidence hereby makes the additional finding of facts.
1. The Court finds that Greg Scott Breckenridge and Cathy Lee Breckenridge are husband and wife and that there are no children of said marriage and that Mr. Breckenridge is gainfully employed as a factory worker and that Mrs. Breckenridge is engaged parttime as a clerk in a drug store.
2. The debtors against the advice of their counsel did, without encouragement by the creditor, sign the reaffirmation agreement on November 10, 1979 in the amount of $1,121.19, acknowledging that the creditor had a security interest in the 1974 Plymouth Duster automobile. This agreement was made before a discharge was granted in these proceedings. The debt in question is a dischargeable debt under the Bankruptcy Code.
3. On November 30, 1979 the debtor, Greg Scott Breckenridge, was involved in an accident at the intersection of Routes 77 and 76 in which his motor vehicle was struck and completely destroyed.
4. On November 30, 1979 there was no collision or fire insurance on said vehicle.
5. On December 12, 1979 the debtor entered into a property settlement with the insurer of the other party in the collision and received the sum of $2,600.00 for damages to the motor vehicle, clothing, and personal property which was in the vehicle at the time of the accident. He failed to *143notify the creditor of the settlement and used the funds to purchase a 1974 Volks-wagon motor vehicle. The balance of the funds was used for other personal purposes.
6. AmeriTrust of Portage County had a valid security agreement, duly recorded, on the motor vehicle as of November 30, 1979 as required by Ohio law. O.R.C. 4505.04.
7. There is currently a balance of $921.19 due on the debt to the creditor, AmeriTrust of Portage County, as the debt- or, Greg S. Breckenridge, made one payment of $200.00 since the signing of the reaffirmation agreement.
8. The Court finds that the debt with the creditor is a consumer debt as defined in 11 U.S.C. 101(7) of the Bankruptcy Code.
ISSUE
Has the debtor a right to rescind the agreement?
LAW
11 U.S.C. Section 524 subsection (c) of the Bankruptcy Code provides that any reaffirmation agreement or redemption agreement made before granting of the discharge under 727 must be approved by the Court at a hearing under 11 U.S.C. Section 524. This hearing is provided for under Section 524(d) and Interim Bankruptcy Rule 4004 as adopted by the Northern District of Ohio. The Court must inform the debtor that such agreement is not required under the Code and the legal effects thereof and the circumstances of the action.
The debtors at the time of the hearing stated in open Court that they did not desire to be bound by the signed reaffirmation agreement of November 10, 1979. 11 U.S.C. Section 524(c) of the Bankruptcy Code prohibits the enforcement of the reaffirmation agreement of a dischargeable debt unless first approved by the Court.
Section 524(c)(2) of the Bankruptcy Code states that an agreement is enforceable only if “(2) the debtor has not rescinded such agreement within 30 days after such agreement becomes enforceable.” Therefore, the agreement to be enforceable, must have been approved by the Court at a hearing as provided for by law. Before approval by the Court, Section 524(c)(4) requires the Court to determine that the debt is a consumer debt that is not secured by real estate and that the agreement does not impose an undue hardship on the debtor, or upon the dependents of the debtor, and is in the best interest of the debtor.
There is no litigation pending pursuant to Section 524(c)(4)(B)(ii) of the Bankruptcy Code. The agreement does provide for the redemption of the motor vehicle under Section 722 of the Bankruptcy Code.
The debtor, Greg Scott Breckenridge, entered into this agreement for reaffirmation in order to redeem the motor vehicle for transportation purposes.
There was no evidence to indicate whether the lien of the creditor was a purchase money mortgage security interest in said vehicle or whether it was a nonpurchase, nonpossessory interest.
Normally the Court would have approved the agreement of November 10, 1979 between the bank and the debtor, Greg Scott Breckenridge, because the debtor was unable to pay the amount of the lien in full; so to facilitate the redemption of the motor vehicle by the debtor, a reaffirmation agreement under 524(c) and (d) had to be made.
Collier on Bankruptcy 15th Ed., Vol. 4 Section 722.05 states:
Redemption under section 722 is accomplished by the debtor paying the lienholder the amount of the allowed claim secured by the lien. Under section 506(a), the amount of the allowed secured claim of an undersecured creditor is the value of the secured party’s collateral. Section 506(a) states that ‘such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearings on such disposition or use .
Cathy Lee Breckenridge is a part-time clerk in a drug store and is dependent upon her husband for support. The motor vehi-*144ele is titled in her husband’s name; therefore, the claim of the bank as to Cathy Lee Breckenridge is an unsecured claim. Accordingly, it appears to the Court that it is not in the best interest of the debtor, Cathy Lee Breckenridge, for the Court to approve such application, as there is no evidence that the debtor, Cathy Lee Breckenridge, has the independent source necessary to pay the debt which she agreed to reaffirm.
Therefore, it is the conclusion of the Bankruptcy Court since the right of recission is the only issue raised by the parties in the pleadings before the Court, the motion for approval of the reaffirmation agreement between the debtor and the bank should be dismissed, as there is no agreement to be approved by the Court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488861/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION ON OBJECTION TO DISCHARGE
ALEXANDER L. PASKAY, Bankruptcy Judge.
THIS IS an adversary proceeding and the matter under consideration is the right of the bankrupt, Gilbert A. Viola, to a general bankruptcy discharge. The proceeding was instituted by a complaint filed by the plaintiff, The First National Bank in Ft. Myers.
It is the contention of the plaintiff that the Bankrupt’s purchase of a truck in the name of Maxine Viola, his mother, within one year prior to his filing a petition in bankruptcy constitutes a transfer, removal or concealment of property with intent to hinder, delay or defraud creditors and that, therefore, the Bankrupt should be denied his discharge by virtue of Sec. 14c(4) of the Bankruptcy Act.
The controlling facts as developed at the final evidentiary hearing can be briefly summarized as follows:
Between December 15, 1977 and January 26, 1978, three separate default judgments totalling $4,022.87 were entered in favor of the Plaintiff and against the Bankrupt in three separate actions filed in the County Court in and for Lee County, Florida. On January 27,1978, one day after the entry of the last judgment, the Bankrupt sold a boat, trailer and outboard motor, the title to which was in the Bankrupt’s name. Payment for these items was in the form of a check in the amount of $3,500, payable to the order of the Bankrupt from J & M Pump Service, Inc. (Def’s. Exh. # 1). The proceeds of this sale were applied toward the purchase of the 1978 Ford pickup truck which is the subject matter of this controversy. This is evidenced by the fact that the $3,500 check was endorsed by the Bankrupt and stamped “Pay to the Order of Sam Galloway Ford, Inc.”, the dealership from which the truck was purchased.
The record reveals that the truck was purchased solely through the Bankrupt’s endeavors and that he arranged all the details concerning the type of truck that he desired. The salesman at the Ford Dealership who was a friend of the Bankrupt and, therefore, aware of his past credit history, advised the Bankrupt that the co-signature of his mother would be necessary in order *221to obtain financing. Therefore, both the Bankrupt and his mother submitted credit applications. The finance manager at the Ford Dealership then submitted an application in both names to one lending institution and this application was rejected. The finance manager then submitted the application to another lending institution in the name of the Bankrupt’s mother only. The submission of the application in the mother’s name alone was not done at the request of the Bankrupt, but was the finance manager’s own determination as the best approach to follow in order to obtain financing. It is clear from the record that the Bankrupt’s mother has no interest in the truck. She, in fact, already had an automobile at the time that the truck was purchased and, has no apparent need for a truck. Furthermore, there was no consideration given by the Bankrupt’s mother in return for the truck.
After gaining knowledge of the above transaction, the Plaintiff on or about May 8, 1978, filed a Motion for Contempt and Determination of ownership of Personal Property in the County Court in and for Lee County, Florida, seeking a determination that the Bankrupt was the true owner of the truck even though it was titled in his mother’s name and seeking an order directing the Sheriff to execute and levy upon the truck. On May 23, 1978, the County Court entered an order directing the Sheriff to execute and levy upon the truck. In the nondecretal portion of this order, the County Court stated that the purchase of the truck by the Bankrupt “constituted an acting effort by (the Bankrupt) to delay, hinder and defraud” the Plaintiff.
On June 23, 1978, the Bankrupt filed his voluntary petition in bankruptcy and listed the truck in his schedules of assets. The Plaintiff subsequently initiated the instant proceeding objecting to the discharge of the Bankrupt on the ground that the purchase of the truck by the Bankrupt in the name of his mother constituted a transfer, removal, or concealment of property with intent to hinder, delay or defraud the Plaintiff within the meaning of Sec. 14c(4) of the Bankruptcy Act.
The Plaintiff initially filed a Motion for Summary Judgment contending that there were no genuine issues of material fact and that the Plaintiff was entitled to judgment as a matter of law in that the issues arising in the instant controversy had already been litigated and that the determination by the Lee County Court that the purchase of the truck by the Bankrupt was an attempt to delay, hinder and defraud a creditor was res judicata. This Court, however, after considering affidavits interposed by the Bankrupt, denied the Motion for Summary Judgment having been satisfied that the issue of whether the Bankrupt’s placing the title to the truck in the name of his mother was done with the intent to hinder, delay or defraud his creditors was not litigated in the County Court proceeding.
The Plaintiff’s objection to the Bankrupt’s discharge is based on Sec. 14c(4) of the Bankruptcy Act which provides in pertinent part as follows:
“The Court shall grant the discharge unless satisfied that the bankrupt has . (4) at any time subsequent to the first day of the twelve months immediately preceding the filing of the petition in bankruptcy, transferred, removed, destroyed or concealed, or permitted to be removed, destroyed, or concealed any of his property, with intent to hinder, delay or defraud his creditors . . . ”
Prior to the adoption of the Bankruptcy Rules, the burden of proof in a contested discharge proceeding was also governed by Sec. 14c of the Bankruptcy Act which provides in pertinent part as follows:
“. . That if upon the hearing of an objection to a discharge, the objector shall show to the satisfaction of the court that there are reasonable grounds for believing that the bankrupt has committed any of the acts which, under this subdivision [c], would prevent his discharge in bankruptcy, then the burden of proving that he has not committed any of such acts shall be upon the bankrupt.”
This provision has been interpreted to shift the ultimate burden of persuasion, not *222just the burden of going forward with the evidence, to the bankrupt, once the objector has established a prima facie case that the bankrupt is not entitled to a discharge. In re Finn, 119 F.2d 656 (3rd Cir. 1941); In re Melnick, 360 F.2d 918 (2d Cir. 1966); Feldenstein v. Radio Distributing Co., 323 F.2d 892 (6th Cir. 1963); Johnson v. Bockman, 282 F.2d 544 (10th Cir. 1960). Thus in Gunzburg v. Johannesen, 300 F.2d 40 (5th Cir. 1962), the Court stated that:
This is more than the burden of going forward with the evidence, for the bankrupt now has the risk of ultimately persuading the court that the allegations in the specifications are untrue.
However, Bankruptcy Rule 407 which became effective on October 1, 1973 now provides as follows:
“At the trial on a complaint objecting to a discharge, the plaintiff has the burden of proving the facts essential to his objection.”
In interpreting this Rule, the Advisory Committee Note to Rule 407 specifically states: “The rule supersedes the proviso at the end of [Sec.] 14c of the Act.” The cases which have considered the effect of Rule 407 on the proviso have held that the bankruptcy judge must allocate the burden of persuasion in accordance with Rule 407, see e. g. In re Martin, 554 F.2d 55 (2d Cir. 1977); In re Tucker, 399 F.Supp. 660 (S.D.Fla.1975).
Accordingly, in order to sustain an objection under Sec. 14c(4), the burden is on the Plaintiff to establish that (1) the act complained of was done subsequent to the first day of the twelve months immediately preceding the filing of the petition in bankruptcy, (2) with intent to hinder, delay, or defraud creditors, (3) that the act was that of the Bankrupt or a duly authorized agent, and (4) that the act consisted of transferring, removing, destroying or concealing any of the Bankrupt’s property or permitting any of these acts to be done. 1A Collier on Bankruptcy, § 14.45 (14th ed. 1978).
In addition, the evidence must be viewed in light of the fact that the statutory provisions dealing with the bankruptcy discharge are remedial in nature, and of course, as such, have been traditionally construed strictly against the objectors and liberally in favor of the bankrupt in order to carry out the legislative intent, i. e. to give the bankrupt a fresh start in life. 1A Collier on Bankruptcy, § 14.02 (14th ed. 1978); see also Lines v. Frederick, 400 U.S. 18, 91 S.Ct. 113, 27 L.Ed.2d 124 (1971); In re Adlman, 541 F.2d 999 (2d Cir. 1976); In re Pioch, 235 F.2d 903 (3rd Cir. 1956). Accordingly, the reasons for denying a discharge to a bankrupt must be “real and substantial, not merely technical and conjectural.” Dilworth v. Boothe, 69 F.2d 621 (5th Cir. 1934).
Furthermore, the law is well settled that in order to deny a bankrupt’s discharge under Sec. 14c(4) of the Bankruptcy Act, the Plaintiff must establish that the property was transferred or concealed with actual fraudulent intent to hinder, delay or defraud. Halpern v. Schwartz, 426 F.2d 102 (2d Cir. 1970). Constructive intent which is sufficient to set aside a transfer under Sec. 67 or under Sec. 70e of the Bankruptcy Act cannot be the basis for the denial of a discharge in bankruptcy. In re Adlman, supra.
In support of its contention that the concealment involved in the instant controversy is presumptively fraudulent, the Plaintiff cites two cases which held that when a transfer of property with little or no consideration is made a presumption of fraud arises. Rothschild v. Lincoln Rochester Trust Co., 212 F.2d 584 (2d Cir. 1954); In re Patrizzo, 105 F.2d 142 (2d Cir. 1939); However, even though such a presumption has been recognized in many cases, it is clear that “it is not so much the acts of the bankrupt that will prevent his discharge as it is the intent with which he acts.” In re Pioch, supra. Furthermore, the cases cited by the Plaintiff are factually distinguishable from the instant case inasmuch as in the cases cited, the conveyances were clearly the voluntary acts of the Bankrupts involved. In the instant case, the record re*223veals that the submission of the credit application in the name of the Bankrupt’s mother alone was not made at the request of the Bankrupt but was done at the initiative of the dealership’s finance manager. This not being the act of the Bankrupt, it cannot be presumptively indicative of his intent. Furthermore, even if the Bankrupt’s subsequent acquiescence to the finance manager’s decision could be said to give rise to a presumption of fraudulent intent, the ultimate burden of persuasion still remains with the Plaintiff.
Applying the foregoing principles to the controversy under consideration, it is evident that the evidence presented by the Plaintiff falls short of the requisite degree of proof and lacks the necessary persuasiveness to establish the fraudulent intent which is required in order to deny a discharge under Sec. 14c(4) of the Bankruptcy Act. Though some damaging statements were made by the Bankrupt at his April 12, 1978 deposition, it appears that he was not represented by counsel at the deposition and that, for the most part, he merely affirmatively acknowledged suggestions made by counsel for the Plaintiff. Furthermore, the dealership finance manager, a disinterested third party, testified that it was his sole decision to submit the credit application in the name of the Bankrupt’s mother alone. Thus, since the evidence is at the most in equilibrium, the Plaintiff has failed to carry the burden of proof as to the existence of any specific and actual intent to hinder, delay or defraud on the part of the Bankrupt. Accordingly, the objection to discharge based on Sec. 14c(4) of the Bankruptcy Act should be overruled.
A separate final judgment will be entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488862/ | *224ORDER VACATING ORDER CLARIFYING ORDER OF ADJUDICATION
PETER M. ELLIOTT, Bankruptcy Judge.
On February 29, 1980, upon the application of William W. Wilcox, a limited partner of Annuity Investment, Inc., bankrupt, in Case No. BK-79-05604-PE, and pursuant to Bankruptcy Rule 105(d), I ordered that Farmer’s Market be adjudged a bankrupt on the grounds that Annuity Investment, Inc. was the sole general partner of Farmer’s Market, a limited partnership. Assuming that Union Oil v. Agate, 268 F.2d 355 (9th Cir. 1959), controlled, I directed that Farmer’s Market be adjudged a bankrupt as of May 25, 1979, when the involuntary petition was initially filed against Annuity Investment.
In a separate adversary proceeding entitled Hamill and Wilcox v. Etchegoyen et al., the date that Farmer’s Market was adjudicated a bankrupt becomes important. If the date relates back to May 25, 1979, the foreclosure sale subsequent thereto is void as in violation of Bankruptcy Rule 601. If the date of bankruptcy is not until the Order was entered on March 3, 1980, after the foreclosure sale, then the sale is not void.
I came to the conclusion that I was in error in adjudicating Farmer’s Market nunc pro tunc as of May 25, 1979. As pointed out in 1A Collier on Bankruptcy (14th Ed.) ¶ 5.13 at p. 714, Bankruptcy Rule 105 was promulgated subsequent to the decision of Union Oil Co. v. Agate, and adjudication of the partnership is no longer automatic when all general partners have been adjudicated. Rather, in view of Rule 105(d) providing for the adjudication of a partnership only upon the application of a party in interest, the time of adjudication should be fixed as the date of the ruling on the order.
Since we have the situation of the general partner filing in May of 1979 under the Bankruptcy Act of 1898, and an application under Rule 105(d) filed in February of 1980, it is appropriate then to enter an order for relief against the limited partnership under the new Bankruptcy Code, and, of course, the provisions of the Bankruptcy Code would thereafter govern the administration of the limited partnership case.
IT IS THEREFORE ORDERED that the Order Clarifying Order of Adjudication entered under the name of Farmer’s Market, a limited partnership, bankrupt, in Case No. BK-79-05604-PE on March 3, 1980 is hereby vacated and a new and separate order for relief will be entered and filed nunc pro tunc as of February 29, 1980 with a new number to be assigned by the Clerk of this Court.
That portion of the Order entered March 3, 1980 which appoints Robert Stopher, Trustee of Annuity Investment, as Receiver in the matter of Farmer’s Market, is necessarily vacated along with the Order entered March 3, 1980. It is the duty of the U. S. Trustee to appoint an interim trustee for Farmer’s Market under the new Code. The petitioning creditors will be required to advance a $60 filing fee, rather than a $50 filing fee as heretofore ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488863/ | MEMORANDUM OPINION
CONRAD K. CYR, Bankruptcy Judge.
The Maine Guarantee Authority [MGA], the Creditors’ Committee and the debtor in possession have submitted to the court, as arbitrator, for final decision, certain issues raised by the proof of claim of the MGA and by the objection and counterclaim of the debtor in possession. The first issue for consideration by the court is whether the security interest of the MGA in personal property of the debtor was properly perfected at the commencement of these proceedings.
At the time of the purchase of its sugar refinery, Pine Tree Sugar Beet Growers, Inc. [Pine Tree] granted MGA a security interest in machinery, equipment and fixtures, which was duly perfected by the timely filing of legally sufficient financing statements correctly identifying Pine Tree Sugar Beet Growers, Inc. as the debtor. Approximately nine months later, Pine Tree concluded successful negotiations with ACLI International, Inc. [ACLI] and K. Patzenhoffer, Inc. [Patzenhoffer] for additional capital. Prior to the completion of these negotiations, Pine Tree changed its name to Triple A Sugar Corporation. ACLI and Patzenhoffer conditioned their advances to Pine Tree upon MGA’s consent to a deferment of certain principal and interest payments due MGA. MGA evidenced its consent by entering into a written agreement to that effect with Triple A Sugar Corporation.1
The debtor in possession contends that the security interest of the MGA in personal property of the debtor was unperfected on April 14, 1977, the date of the filing of the Chapter XI petition, because the financing statements, though correct when filed, did not correctly identify the debtor following its name change. The debtor in possession concedes that the financing statements were sufficient when filed, but insists that the failure of the MGA to refile or otherwise reflect the name change vitiated the original filings and gave rise to an unper-fected secret lien voidable under Bankruptcy Act § 70c. The MGA was informed in writing more than a year before the commencement of the Chapter XI proceedings that the debtor had changed its name to Triple A Sugar Corporation,2 but was it the duty of the MGA to supplement the public record?
The version of Maine Uniform Commercial Code section 9-402 governing the instant transaction imposed no statutory duty that a secured party cause the public record to reflect a debtor name change neither contemplated nor accomplished prior to the filing of the original financing statement. But cf. In re Kalamazoo Steel Process, Inc., 503 F.2d 1218 (6th Cir. 1974) [secured party aware of impending name change before *242filing of original financing statement]; In re Conger Printing Co., Inc., 18 UCC Rep. 224 (B.J.D.Or.1975) [parties agree to name exchange following secured transaction]. Since that time, the notice filing system has been further flawed by the enactment of Maine Uniform Commercial Code section 9 — 402(2)(d) expressly negating any such responsibility.3
In order to perfect a Code security interest, a secured party need only file a bare-bones financing statement, signed by the debtor, containing the name and address of the secured party, the name and a mailing address of the debtor, and a statement indicating the types of collateral.4 The Code criteria for a sufficient financing statement are as relaxed as they are simple. A financing statement is effective notwithstanding the fact that it contains “minor errors which are not seriously misleading.” 5 A financing statement remains effective for up to five years,6 without updating, “even though the debtor’s residence or place of business ... or the location of the collateral or its use, whichever controlled the original filing, is thereafter changed.”7
Notice filing is so uncomplicated from the standpoint of secured parties that the large volume of reported litigation over the simple requisites of a sufficient financing statement is surprising.8 The concomitant burdens on those forced to rely upon the public record are not inconsequential. Unless the skeletal information contemplated by section 9-402 is generously supplemented by the secured party, the burden of search may be heavy. Furthermore, the burden of further inquiry by the file searcher may be undertaken to no avail.9 These are inevitable and therefore, presumably, intended consequences of legislative adoption of notice filing. Beyond that, however, section 9-402 makes the searcher an indemnitor against “minor” errors of the secured party,10 a fact which has prompted this court to interpret its provisions with a view to the purposes of the Code filing system.11 Moreover, the searcher, not the secured party, bears the burden of indexing error by the filing officer,12 a fact which suggests the need for particular concern in circumstances where indexing correctly per*243formed fails to reveal a financing statement under the name of the debtor due to error on the part of the secured party.
The entire purpose of the Code filing system is to provide a reliable means by which to learn of the possible existence of consensual liens on property of the debtor.13 Judicial14 and legislative15 sympathy for errant secured parties has weakened important Code protections designed to ensure the notice opportunity upon which true notice filing depends. Yet there appears to be little legislative inclination to preserve essential notice-filing criteria even when Code simplism threatens to deprive the notice-filing system of any notice-giving utility whatever.16
Financing statement errors which prevent the notice-filing system from functioning should never be considered minor, and are always misleading. As an example, a designation of the debtor as “Pine Tree Sugar Beet Growers, Inc.,” rather than “Triple A Sugar Corporation,” resulting in the indexing of the financing statement under a name in no way resembling the correct name of the debtor, would unquestionably foreclose access to the MGA financing statement. The failure of the MGA to supplement the public record upon learning of the name change had exactly the same effect in succeeding years. It prevented interested persons not actually aware of the name change from learning of the MGA security interest.
Maine Uniform Commercial Code section 9-402(2)(d) not only relieves the secured party of any obligation to supplement the public record in these circumstances, it attempts no coordination between the liberal statutory provisions permitting corporate name changes17 and the statutory requirements of a sufficient financing statement under the Uniform Commercial Code, notwithstanding the fact that the Secretary of State is responsible for indexing and maintaining 18 the public records kept in connection with both statutes. In the absence of any requirement that a secured party update its financing statement following a name change by the debtor and in the interest of safeguarding the Code filing system, it would seem appropriate that there be cross-indexing. It would not be an unreasonable requirement, as a prerequisite to the validation of a corporate name change, that written notification of the pendency of an application for a change of name be provided every holder of a security interest in property of the debtor corporation, in order to enable the holder to file an amend-atory financing statement within a prescribed period following a name change. Such an approach is preferable to mere cross-indexing by the Secretary of State which would not afford protection to persons relying upon the financing statement indices maintained in the various registries of deeds.19
There being no applicable statutory provision expressly controlling the issue20 and no case law directly in point, the debtor in possession premises its contention that the MGA security interest is unperfected on the grounds that the failure to cause the financing statements to be amended or supplemented after the name change became known to MGA constituted a lack of good faith within the meaning of Maine Uniform *244Commercial Code section 1-203.21 See In re Kalamazoo Steel Process, Inc., 503 F.2d 1218 (6th Cir. 1974). The debtor in possession is unable to point to any contractual or statutory duty incumbent upon the MGA as a result of the name change. The court has been unable to discover any authority directly supporting the position urged by the debtor in possession. The name change was neither contemplated nor accomplished pri- or to the filing of the original financing statements by MGA. At that time the Maine Uniform Commercial Code was silent as to any requirement that a filed financing statement be amended to reflect a change of the name of the debtor. See In re Pasco Sales Co., Inc., 77 Misc.2d 724, 354 N.Y.S.2d 402, 14 UCC Rep. 1059 (Sup.Ct.N.Y.Cty.1974). Later, the Maine Legislature rejected model UCC § 9-402(7) which required a new financing statement to be filed within four months of a change of name in order to perfect a security interest in collateral acquired following the four-month refiling period. Instead, the Maine Legislature enacted section 9-402(2)(d),22 expressly relieving secured parties of any obligation to refile in such circumstances.
The court is satisfied that the better course would be to require refiling or, at least, to coordinate the corporate name-change and the financing-statement provisions of the Maine Revised Statutes, with a view to preserving meaningful notice opportunity under the Code filing system. But the court cannot engraft a refiling requirement of its own making without legislative license. See In re Carlstrom, 3 UCC Rep. 766, 770 (Ref.D.Me.1966). The resultant serious defect in the Code filing system can be corrected, if at all, only through legislative action.
Accordingly, the financing statements filed by the MGA are determined to have been sufficient to perfect its security interest as of the date of the commencement of the Chapter XI proceedings.
. The agreement, dated March 12, 1976, states that Triple A Sugar Corporation was formerly known as Pine Tree Sugar Beet Growers, Inc.
. See note 1 supra.
. “(2) A financing statement which otherwise complies with subsection (1) is sufficient, when it is signed by the secured party instead of the debtor if it is filed to perfect a security interest in
(d) Collateral acquired after a change of name, identity or corporate structure or (sic) the debtor. The secured party is not required to file a new financing statement to perfect or continue to perfect a security interest after such change of name, identity or corporate structure of the debtor.” Me.Rev.Stat.Ann. tit. 11 § 9-102(2)(d) (Supp.1979-80).
Section 9-402(2)(d) did not become effective until March 31, 1978.
. See id. § 9-102(1) (Supp.1979-80). See id § 9-102(1). See also In re Cushman Bakery, 526 F.2d 23 (1st Cir.), cert. denied Agger v. Seaboard Allied Milling Corp., 425 U.S. 937, 96 S.Ct. 1670, 48 L.Ed.2d 178 (1975). See generally, I Gilmore, Security Interests in Personal Property § 15.3 (1965).
. Me.Rev.Stat.Ann. tit. 11 § 9-102(5); id. § 9-402(8) (Supp.1979-80).
. Id. § 9-403(2); id. § 9-103(2) (Supp.1979-80).
. Id. § 9-401(3); id. § 9-101(3) (Supp.1979-80).
. The case digests under UCC § 9-402 in Callaghan’s Uniform Commercial Code—Case Digest fill 163 pages. See 8 UCC Case Digest ¶¶ 9402.1-9402.41 (Callaghan & Co. 1976); id. ¶¶ 9402.1-9402.42 (Cum.Supp.1979).
. “Notice filing has other advantages, which ■ will be pointed out in due course, as well as its own peculiar weaknesses. The chief weakness is that the filed notice gives no information about the actual state of affairs. The only conclusion which can be drawn from the notice is that the parties . . . evidently intended, at the time of filing, to engage in some kind of financing transaction. No transactions may ever have taken place. . . ” See, e. g., I Gilmore, Security Interests in Personal Property § 15.2 (1965) at 469.
. Me.Rev.Stat.Ann. tit. 11 § 9-402(5); id. 9-402(8) (Supp.1979-80).
. See, e. g., In re Brawn, 7 UCC Rep. 565 (Ref.D.Me.1970). Compare In re Reeco Electric Co., Inc., 415 F.Supp. 238 (D.Me.1976) with In re Raymond F. Sargent, Inc., 8 UCC Rep. 583 (Ref.D.Me.1970).
. See Me.Rev.Stat.Ann. tit. 11 § 9—103(1) & (4).
. See generally, I Gilmore, Security Interests in Personal Property § 15.3 (1965).
. See, e. g., In re Platt, 257 F.Supp. 478 (E.D.Pa.1966); In re Kann, 6 UCC Rep. 622 (Ref.E.D.Pa.1969); In re Simpson, 4 UCC Rep. 250 (Ref.W.D.Mich.1966); In re Bengston, 3 UCC Rep. 283 (Ref.D.Conn.1965),
. See, e. g., Me.Rev.Stat.Ann. tit. 11 § 9-403(1); id. § 9—402(2)(d) (Supp. 1979-80).
. See, e. g., id.
. See id. tit. 13-A §§ 106, 301-303, 403(1)(A), 802(2)(A), 807(1) & (3), 808(1) (1973 pamph.).
. See id. § 106(1)(A) & (D); id. tit. 11 § 9-403(4).
. See id. § 9-01(1)(a) (Supp. 1979-80) & § 9-403(4).
. See note 3 supra.
. “Every contract or duty within the Title [11] imposes an obligation of good faith in its performance or enforcement.” Me.Rev.Stat.Ann. tit. 11 § 1-203.
. Me.Rev.Stat.Ann. tit. 11 § 9-402(2)(d) (Supp.1979-80). See In re Pasco Sales Co., Inc., 77 Misc.2d 724, 354 N.Y.S.2d 402, 14 UCC Rep. 1059 (Sup.Ct.N.Y.Cty.1974). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488864/ | Memorandum and Order
THOMAS W. JAMES, Bankruptcy Judge.
The court called the complaint of James Jones and Rudolph Moragne, plaintiffs, against the Illinois Department of Public Aid, defendant, for trial. The department had filed an answer objecting to the court’s jurisdiction. The court commenced the trial on January 14, 1980. The plaintiffs appeared by Richard L. Clayter and the department by Robert W. Biederman, special assistant attorney general.
Biederman on January 14 stated to the court that the department’s participation in the trial at that point in no way indicated a consent or waiver of any jurisdictional argument. The court called this a meaningless statement inferring that the department had consented to the trial. Of course, this court was in error for the department had made a timely objection in its answer and had not waived its objection to jurisdiction as provided in Bankruptcy Rule 915.
The question of jurisdiction again arose on the department’s objections to the admission of certain exhibits offered by the plaintiffs. Whatever the reasons for the delay in broaching this question the court must now consider the question. Indeed it *305is incumbent on a bankruptcy court to resolve the question of summary jurisdiction promptly. This court regrets the delay and the inconvenience to the parties the delay may have caused for this court is of the opinion that it does not have summary jurisdiction over the department and must sustain the department’s objection to jurisdiction.
The court has read and considered the complaint, the answer, the department’s memoranda in support of its jurisdictional objections and the plaintiffs’ memorandum in opposition to the department’s objection.
In its answer and memoranda the department asserts that the Eleventh Amendment to the United States Constitution prohibits the plaintiffs’ claim in this court against the department, unless the state consents, and that this court lacks subject matter jurisdiction over the plaintiffs’ claims against the department. The plaintiffs’ complaint seeks funds allegedly in the department’s possession and due plaintiffs as a result of their work at Friendship Medical Center, Ltd., the bankrupt; funds in the department’s possession allegedly used to set off Friendship’s indebtedness to the department; and funds owed to Jones and Moragne that were allegedly used by Friendship and never transferred to the doctors. David Taylor, the trustee and also a defendant, has not asserted any claim to the funds plaintiffs seek from the department. The trustee has neither actual nor constructive possession of the funds the department holds. Subject matter jurisdiction of this court extends to the property only in the actual or constructive possession of the trustee.
The department also objects on the ground that the Eleventh Amendment bars plaintiff’s claims against Illinois because Illinois has not consented to be sued on this claim. Indeed, federal courts may not enter judgments to be paid out of public funds in the state treasury. Edelman v. Jordan, 415 U.S. 651, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974). Therefore, to the extent that the plaintiffs seek payment from the Illinois treasury, they have not stated a claim upon which this court can grant relief.
Moreover, there has been no express waiver of the department’s Eleventh Amendment protection in this proceeding. The department has made timely objections to the jurisdiction of this court. It did not waive its constitutional objections by filing a proof of claim. The consent which results from filing a proof of claim is limited to that necessary for disposition of the claim; the plaintiffs’ claims against the IDPA have nothing to do with the proof of claim against Friendship Medical Center.
The court concludes that the objection to the court’s jurisdiction must be sustained and that the Illinois Department of Public Aid must be dismissed as a party defendant.
It is therefore ordered that the objection of the Illinois Department of Public Aid, defendant, to the court’s jurisdiction is sustained and that complaint of James Jones and Rudolph Moragne, plaintiffs, against the Illinois Department of Public Aid, defendant, is dismissed without prejudice. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488896/ | MEMORANDUM OF DECISION
JON J. CHINEN, Bankruptcy Judge.
The Motion of Stahl, Asano, Shigetomi Associates, Jon Riley Stahl and Noriko Asa-no Stahl, hereinafter “Debtors”, for an Order Requiring Makani Development Company, Limited, To Record Agreement of Sale, came on for hearing on June 9,1980, before the undersigned Judge. Present at the hearing were Lawrence Weisman and Thomas P. Dunn for the Debtors and Gregory P. Conlan for Makani Development Company, Limited, hereinafter “Makani”.
*149Based upon the arguments of counsel, the memoranda and records filed herein, the Court finds as follows:
FINDINGS OF FACT
1. The Agreement of Sale deals with the sale by Makani and purchase by the Debtors of the Makani Kai Hotel Property, hereinafter “Hotel”. On March 29,1979, Maka-ni brought a foreclosure action in the State Court against the Debtor, thereby vesting in the State Court constructive possession over the Hotel.
2. On June 14, 1979, the Debtors filed their Petition in the Bankruptcy Court, thereby staying the foreclosure action in the State Court.
3. On May 5, 1980, this Court vacated the stay, wherein it returned the property in question to the constructive possession and jurisdiction of the State Court.
4. Makani has never submitted to the jurisdiction of this Court; thus, this Court has no jurisdiction over Makani.
CONCLUSIONS OF LAW
1. It is well established that the filing of a foreclosure proceeding in a State Court vests that Court with constructive possession of the mortgaged property. Matter of Roloff, 598 F.2d 783 (3rd Cir. 1979).
2. It is also well established that, upon commencem'ent of the Bankruptcy proceedings, the Bankruptcy Court has the authority to stay the continuation of the foreclosure proceedings in the State Court.
3. And there is no doubt that the Bankruptcy Court may vacate the stay and return the mortgaged property to the constructive possession and jurisdiction of the State Court.
4. In the instant case, when the Bankruptcy Court vacated the stay, it surrendered further jurisdiction to deal with the mortgaged property, except to control certain distribution of the proceeds from the sale of the mortgaged property.
5. In addition, this Court has no jurisdiction over Makani which has never submitted to the jurisdiction of this Court. Without jurisdiction over Makani, this Court has no authority to direct Makani to record the Agreement of Sale.
Based on the foregoing, this Court denies Debtor’s Motion. An Order encompassing these Findings of Fact and Conclusions of Law will be signed upon presentment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488897/ | MEMORANDUM OPINION
BENJAMIN E. FRANKLIN, Bankruptcy Judge.
On April 30, 1980, the above entitled cause came on for hearing before the Court. The plaintiff, Brockman Equipment Leasing, Inc., was represented by Charles R. Wilson. The defendant, Hosea E. Sowell, trustee, was represented by Thomas M. Mullinix; and defendants, Roger and Sherry Jones, intervenors, were represented by Mark Corder.
The Court, after hearing testimony of witnesses, statements of counsel and examining the files, pleadings, exhibits and briefs filed herein, makes the following Findings of Fact and Conclusions of Law:
FINDINGS OF FACT
1. On July 1, 1978, Dorothy M. Williams leased the following real property to Roger A. Jones and Sherry Jones, for a period of ten years:
“Lots 112-126, both inclusive, Block 4, Lockwood Heights, an addition to the City of Olathe, Kansas, commonly known as 130 Fir Street, Olathe, Kansas.”
2. On July 6, 1978, the above described premises were subleased to Crews Chrysler-Plymouth, Inc., A. Drummond Crews, president, with the consent of Dorothy M. Williams, for use as an automobile dealership.
3. On August 2, 1978, Roger A. Jones, intervenor, was notified by the attorneys for Crews Chrysler-Plymouth, Inc., of the fact that 15 light poles were to be installed on the parking lot at a total cost of $19,-000.00; that $6,000.00 was to be paid in cash and the balance was to be paid pursuant to a lease-purchase agreement.
4. On September 21, 1978, Crews Chrysler-Plymouth, Inc. entered into the lease-purchase agreement with Brockman Equipment Leasing, Inc., wherein by the terms of the lease, the lessee was given the option to “purchase said equipment per schedule for the sum of One Dollar and no/00 ($1.00) plus applicable state sales tax, at any time between the sixth day of September, 1983 to the twentieth day of September, 1983.”
5. That the equipment involved in the lease-purchase agreement were pylons and lights which were delivered to Crews Chrysler-Plymouth, Inc. by Brockman and the same were thereafter installed on the property by Crews Chrysler-Plymouth, Inc., who constructed concrete pedestals in the parking lot and attached the light poles delivered by Brockman Equipment thereto by four bolts at the base of the poles.
6. The length of this lease was 60 months, payable in installments of $366.39 per month.
7. On September 26, 1978, the financing statement was filed with the Secretary of State of Kansas and on September 27,1978, said financing statement was also filed with the Register of Deeds of Johnson County, Kansas.
8. On December 28,1979, an involuntary petition in bankruptcy was filed against Crews Chrysler-Plymouth, Inc., and on January 24, 1980, the Court entered its Order for Relief. Thereafter, Hosea E. Sowell was appointed interim trustee. The trustee failed to assume the lease within the time allowed by the Code (11 U.S.C.A. § 365) and thus, said lease was terminated as to him.
9. On April 3, 1980, Roger A. Jones and Sherry Jones subleased the premises at 130 N. Fir Street, Olathe, Kansas, to Olathe AMC-Jeep-Renault, Inc. (James V. Hundley, president) for a period of five years.
10. On February 25, 1980, Brockman Equipment Leasing filed a Complaint for Relief from Stay under 11 U.S.C.A. § 362(d)(2)(A) alleging that the defendant-trustee had no equity in the light poles and therefore, any rights he had therein should be terminated.
11. After a Motion to Intervene by Roger and Sherry Jones, filed on March 12, 1980, the Court granted them leave to intervene on April 30, 1980.
*178ISSUE INVOLVED
WHETHER OR NOT THE LIGHT POLES HEREIN REMAIN PERSONALTY AND THEREBY MAY BE REMOVED BY BROCKMAN EQUIPMENT LEASING, INC.
CONCLUSIONS OF LAW
K.S.A. 84-9-313(l)(a) states in pertinent part as follows:
“(a) goods are ‘fixtures’ when affixing them to real estate so associates them with the real estate that, in the absence of any agreement or understanding with his vendor as to the goods, a purchaser of the real estate with knowledge of interests of others of record, or in possession, would reasonably consider the goods to have been purchased as part of the real estate; ”
With regard to K.S.A. 84-9-313(l)(a), the Joneses could not have reasonably considered the poles to have been purchased as a part of the real estate since they were aware that the poles were installed as a result of a lease with an option to buy.
Bromich v. Burkholder, 98 Kan. 261, 158 P. 63 (1916) held that affixed machinery, sold on a conditional sales agreement in which the title is reserved in the vendor until full payment, retains its character as personalty against the holder of a prior real estate mortgage.
Also in Bromich v. Burkholder, supra, at pg. 263, 158 P. at pg. 64, the Court stated:
“In modem times there has been a great relaxation of the ancient rule that all things annexed to the realty become part of it. Formerly the criterion for determining whether machinery in a building had become part of the realty was whether it was physically attached or in the ordinary understanding became a part of the realty. The weight of authority now is that the intention of the parties is the safest criterion. As said in the opinion of Shoemaker v. Simpson, 16 Kan. 43:
* * # # * *
The exact question involved in this case was decided in Eaves v. Estes, 10 Kan. 314, 15 Am.Rep. 345. That was a controversy between the holder of a chattel mortgage covering a steam engine which had been installed in a mill upon which Eaves held a prior real-estate mortgage. It was held that by reason of the terms of the chattel mortgage, the engine, regardless of the nature of its attachment to the mill, never became a part of the realty, and that the vendors were entitled to recover its possession and remove it from the mill.”
In this case, it was the intention of the original parties that the light poles remain personalty and this Court so holds that they are personalty and may be removed by the plaintiff, Brockman.
In Smith v. Holland Furnace Co., 128 Kan. 580, 583, 278 P. 719, 720 (1929), the Court stated in referring to Marshall v. Bacheldor, 47 Kan. 442, 28 P. 168:
“But it was held that the contract under which the windmill and grinder were sold and erected on the farm — to remain the property of Hollis until paid for and he to have the right to remove them if he felt insecure — was valid, and consequently they did not become part of the real estate, and Bacheldor’s homestead could not be subjected to execution levy and forced sale to pay for the windmill and grinder as improvements to the realty.”
In Finnegan v. Ihinger, 150 Kan. 357, 364, 92 P.2d 538, 543 (1939), when referring to a chattel mortgage which provided that a building on land constituting personalty, the Court stated, in pertinent part:
“That the parties to the transaction had the right to agree the building should remain personalty and that their rights should be determined accordingly is no longer open to dispute under the numerous decisions of this court. (Eaves v. Estes, 10 Kan. 314 [15 Am.Rep. 345;] [Central] Branch [R.] Co. v. Fritz, 20 Kan. 430, 434, 436; Comm’rs of Rush County v. Stubbs, 25 Kan. 322; Docking v. Frazell, 38 Kan. 420, 17 P. 160; Bromich v. Burkholder, 98 Kan. 261, 265, 158 P. 63; Lum
*179
ber and Grain Co. v. Eaves, 114 Kan. 576, 580, 220 P. 512; McCrae v. Bradley Oil Co., 148 Kan. 911, 913, 84 P.2d 866.”
In this case, the parties to the transaction (Crews Chrysler-Plymouth, Inc. and Brock-man Equipment Co.) entered into an agreement whereby the poles were to be leased with an Option to Purchase in 1983, which in effect showed their intention that the poles were to remain personalty until the option was accepted.
The Court finds that the rights of the intervenors cannot be any greater than those of Crews Chrysler-Plymouth, Inc., or Dorothy M. Williams, owner; that the light poles themselves were and are equipment; that the contract entered into between Crews Chrysler-Plymouth, Inc. specifically states that it is an “Option to Purchase Leased Equipment ”; that the lease was to run until September 6, 1983, at which time the lessee, Crews Chrysler-Plymouth, Inc., would then have an option period to purchase this equipment for one dollar.
The Court further finds that the payments to be made on said light poles are in default and the time has not come in which the lessee could have exercised his option to purchase the poles; that in a letter from plaintiff, Brockman Equipment Leasing, Inc., to the intervenors, Roger and Sherry Jones, dated August 2, 1978, they were advised that the light poles were subject to a “lease purchase agreement”; these poles are attached to each of the fifteen concrete pedestals by four bolts.
The Court further finds that the interve-nors’ contentions are wholly without merit and cannot apply in this case, in that the poles were attached with their full knowledge; that it was a lease-purchase agreement, coupled with the fact that paragraph 14 of the original lease between Dorothy M. Williams and Roger and Sherry Jones, specifically excepts business “trade fixtures” and “equipment ” therefrom. Paragraph 14 reads as follows:
“14. FIXTURES: All buildings, repairs, alterations, additions, improvements, installations, equipment and fixtures, by whomsoever installed or erected (except such business trade fixtures and equipment (D.M. V.) belonging to LESSEE as can be removed without damage to or leaving incomplete the premises or building) shall belong to LESSOR and remain on and be surrendered with the premises as a part thereof, at the expiration of this lease or any extension thereof.”
In other words, under paragraph 14, all building repairs, alterations, fixtures and equipment, etc. installed or erected on premises shall belong to the lessor except business trade fixtures and equipment belonging to the lessee that can be removed without damage to or leaving incomplete the premises or building.
In Bromich v. Burkholder, supra, at pg. 266, 158 P. at pg. 65, the Court stated:
“The evidence of the plaintiff in the present case tended to show that the boiler in question can be removed without substantial injury to the real estate.”
The Court finds, in the instant case, that the evidence herein shows that the light poles are leased equipment and can be removed by unscrewing the four bolts in which they are attached to the concrete base and further their removal would in no way, substantially injure the real estate.
The Court further finds that it was the intention of the parties that these poles remain personalty until the lessee (Crews Chrysler-Plymouth, Inc.) completed its payments and exercised its right to take up the option to purchase: neither of which ever occurred. This ruling is in line with the weight of authority. Shoemaker v. Simpson, 16 Kan. 43, 50.
For reasons set out above,' the Court grants judgment to the plaintiff, Brockman Equipment Leasing, Inc.; the automatic stay is therefore terminated; and the temporary restraining order is vacated.
THE FOREGOING CONSTITUTES MY FINDINGS OF FACT AND CONCLUSIONS OF LAW UNDER BANKRUPTCY RULE 752 AND RULE 52(a) OF THE FEDERAL RULES OF CIVIL PROCEDURE. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488898/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
FACTS
The facts are not in controversy, having been submitted by stipulation and pretrial order, but the pertinent details will be recounted.
Charlyn Anne Booher, divorced and unre-married, filed a voluntary petition in bankruptcy on 2 February 1979. Prior thereto her Thunderbird boat had been stolen. It had been covered by a theft insurance policy issued by Auto Owners Mutual Insurance Company (not a party to the instant litigation).
The policy contained a loss payable clause to The City Loan & Savings Company, which had a duly perfected security interest against the boat at the time of the loss.
On 7 February 1979 Debtor presented a claim to the insurance company for the loss; and, on 27 April 1979 a draft for $2,400.00 was issued by the company to Debtor and City Loan. From the proceeds, City Loan retained $1,877.59 and Debtor the balance, which was then shared with her ex-husband (who also is not a party in the instant litigation).
All of these insurance transactions were conducted by the parties without any consideration or reference to E. James Wam-pler, the Trustee in Bankruptcy. It was only by diligence and perseverance that the exact details surrounding the receipt and use of estate funds were detected by him, giving rise to the Complaint now at issue.
DECISION
The Plaintiff Trustee seeks a return of the entire insurance proceeds from both Debtor and City Loan.
I
Despite the loss payable clause in the insurance policy running to City Loan, the Trustee urges that the security interest on “proceeds” was not validly perfected under the rationale of the decision by this Court on similar facts In re Whitacre, 21 U.C.C.Rep. Serv. 1169 (1976, at Dayton). Without laboring the principles therein rationalized, we are constrained now to hold that decision is no longer controlling. Since the date of the decision, Ohio Revised Code Section 1309.25(A) was amended by adoption of the “1972 amendments” to Article 9 (U.C.C. 9-306) of the Uniform Commercial Code, effective 1 January 1979. Among innumerable other changes, this statute now provides that “insurance payable by reason of loss or damage to the collateral is proceeds except to the extent that it is payable to a person other than a party to the security agreement.” [emphasis added].
*256II
Debtor defends her actions in ignoring the Trustee by claiming that the proceeds commandeered by her were exempt under Ohio Revised Code § 2329.81. We note that there was never any such exemption claimed by Debtor in her schedules, or otherwise, before the instant litigation and extrajudicial disposition. We note further that this exemption cannot exceed $500.00 in any event.
Even more seriously, however, we are constrained to find that the Debtor, being unmarried, cannot qualify to make such a claim under § 2329.81. See decisions by this court In re Steele, Case No. B-3-77-158 (1977, at Dayton) and In re Washington, 3 Bankruptcy Court Decisions 885 (1977, at Dayton).
ORDERED, ADJUDGED AND DECREED, that Plaintiffs complaint against Defendant, The City Loan & Savings Company, is denied.
ORDERED, ADJUDGED AND DECREED, that Plaintiff's complaint against Charlyn Anne Booher, should be, and is hereby, granted and turnover judgment is entered accordingly for $522.41. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488899/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
This matter came on for trial on 11 July 1980, at which time Claim No. 13 on the Claims Register for the amount of $10,-000.00 for “Compensatory Damages, Punitive Damages, Attorney’s fees and costs” was disallowed for want of proof and documentation; not subject to liquidation; and, only contingent at best.
The cause of action asserted by Plaintiff for reimbursement for “one-half of the expenses for fertilizer, seed, chemicals and other expenses” pursuant to the usual and customary farming 50/50 share agreement between Defendants and the Bankrupt was held under consideration, to enable the Court more time to review the evidence and testimony adduced.
Mature consideration substantiates the facts, that the agreement was oral and fully consummated. The only documentary evidence adduced as to gross proceeds was the sales vouchers and “grain patronage ledger” upon harvesting of the crop, which was in no manner impeached by any other evidence. The only witness (not a party) was not entirely unbiased and disinterested, having previously been an adversary litigant against the bankrupt.
Defendants received gross proceeds from the crop of $2,974.89 and net checks of $2,875.83.
The amount of the controversy for one half of the expenses, in the sum of $2,167.16, has been established by testimony and documentation from the bankrupt, and no evidence was submitted to impeach such proof.
The review of the evidence further demonstrates that defendants admit liability under the 50/50 agreement, but refused payment after the harvest and receipt of one-half of the gross proceeds, claiming Bankrupt did not pursue proper farming methods. This claim was never asserted prior to the harvest, and was never vigorously maintained during attempts by the Bankrupt to obtain settlement. After Bankrupt filed suit in the Xenia Municipal Court, Defendants then filed an Answer and Counter-Claim for $10,000.00, which was the basis of Claim No. 13 previously disallowed herein from the bench, for want of proof. Before the state court suit, the only reason ever offered by Defendants for nonpayment was that they did not then have funds on hand.
The Court must now conclude that the nebulous controversy over farming methods is too indefinite, and more in the nature of a belated rationalization. It was a customary 50/50 arrangement and the parties had a duty to raise such questions, if any, during the course of the farming season. The vicissitudes of crop production and marketing are too hazardous to permit one party to reap all of the benefits and disclaim all responsibility for crop failures.
The court notes, in addition, that the Bankrupt and his capabilities were well known in the community and to the Defendants, he having even been employed for tilling on the same farm previously under a written “cash lease”.
In fact, in this case, there is considerable evidence that the Bankrupt performed his function in a very capable manner and that the harvest did not come up to expectations because of natural conditions beyond his control. The controversy over the Fall harvest is one of those debatable subjects more amenable to fireside philosophical treatment than scientific proof in a court, certainly not established herein by competent, material evidence.
*323Furthermore, there was no contract guarantee of a minimum production quota or of a minimum net profit. If such guarantees are to be enforced, they, at least must be incorporated into a properly drawn and executed contract.
The Defendants have reason to be disappointed with the net income for the season. It must be remembered, nevertheless, that the Bankrupt suffered the same disappointment. In addition, the Bankrupt incurred expenses of at least $4,334.32 for seed and chemicals, not counting his equipment and labor, for which he did not receive any reimbursement whatever.
The testimony by Defendants raised some doubt or innuendo concerning the application of the chemicals on the subject farm. However, no material evidence was submitted to show any specific diversion to other uses. Mere conjecture does not at law rebut the direct testimony of the Bankrupt, and should be rejected by the court.
Accordingly, judgment should be and is hereby, awarded to Plaintiff for Defendants’ share of the total expenses, in the amount claimed of $2,167.16. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488900/ | Memorandum Opinion on Complaint To Sell Free And Clear Of Liens
EDWARD H. PATTON, Jr., Bankruptcy Judge.
The matter before the court is a complaint to sell certain law books free and clear of liens. The complaint was brought by the trustee in bankruptcy of the debtor, Legal Cooperatives, Inc. (hereinafter referred to as LCI) against the defendant, West Publishing Company (hereinafter referred to as West), which answered by alleging that it has a perfected security interest in the property that the trustee seeks to sell free and clear.
LCI was in the business of subdividing office space into offices and leasing it to attorneys. On August 23, 1978 Michael Walters, the secretary-treasurer of LCI, met with Ed Buckrey, a representative of West. At that meeting Mr. Walters, on behalf of LCI, agreed to purchase some law books from West.
The form used for the purchase of the books is an installment sales contract which calls for a down payment plus monthly installment payments. The instrument contains the names and addresses of both parties, a description of the books, and the signatures of Mr. Walters and a representative of West. Among other things, the contract provides that West “retains title to said books until paid. . . ”
*384A photocopy of this agreement was filed with the Texas Secretary of State’s Office in Austin, Texas. A UCC-1 form financing statement was stapled to and filed with the photocopy of the agreement. This financing statement has the names and addresses of LCI and West, a signature of a representative from West, and a reference to the attached agreement. The UCC-1 form financing statement does not have a description of the collateral and it is not signed by the debtor.
LCI filed a Chapter XI petition in bankruptcy on June 19, 1979 and was adjudicated a bankrupt on July 23, 1979. On September 11, 1979 the trustee filed his complaint to sell free and clear of liens.
The trustee asserts that he is entitled to sell the books for the benefit of the estate because (1) the agreement between LCI and West is not a security agreement, and (2) even if it is a security agreement it was not properly perfected. West alleges that it is entitled to the books because it is the holder of a valid, perfected security interest in the books. Thus the court must determine whether the contract between LCI and West created a security interest and if so, whether that security interest was properly perfected.
A security interest is defined as “an interest in personal property or fixtures which secures payment or performance of an obligation.” Tex.Bus. & Comm.Code Ann. § 1.201(37) (1968). The primary question for determining whether a transaction is to be treated as a security interest is whether the transaction is intended to have effect as a security. Matter of Miller, 545 F.2d 916, 918 (5th Cir. 1977); Tex.Bus. & Comm.Code Ann. § 9.102, Comment 1, (Supp.1980). A sale with retention of title by the seller creates a security interest. Mayor’s Jewelers of Ft. Lauderdale, Inc. v. Levinson, 39 Ill.App.3d 16, 349 N.E.2d 475, 19 UCC Rep. 1206, 1208 (1976), See Tex.Bus. & Comm.Code Ann. §§ 2.401(a), 1.201(37) (1968).
Here, the trustee argues that the contract does not create a security interest because the language of the agreement between LCI and West does not contain provisions which are usually found in security agreements, such as default provisions and acceleration clauses. The court believes that such provisions are not necessary to create a security interest. Rather, the retention of title is sufficient. While a security agreement “must contain language which specifically creates or grants a security interest . . Mitchell v. Shepherd Mall State Bank, 458 F.2d 700, 703 (10th Cir. 1972), there is no reason why language which keeps title in the seller until the goods are paid for should be insufficient. Had Mr. Walters, a practicing attorney for 15 years, bothered to read the document that he willingly signed, he would have realized that it was more than a mere purchase order. The language of the agreement is plain and unambiguous, and the clause reserving title in the seller is not in fine print. In fact, no part of the agreement is in fine print; it is short and simple to read. Under these circumstances, the court is compelled to hold that the agreement in question created a security interest.
This brings the court to the issue of whether West’s security interest was properly perfected. At trial the deposition testimony of Henry Garcia, deputy director of the Uniform Commercial Code Division of the Secretary of State’s Office, and Ralph Queen, an examiner of questioned documents, tended to prove that the original document executed by LCI and West was not filed with the secretary of state’s office. Mr. Queen’s testimony was that the copy of the agreement on file with the secretary of state was not the original, but was only a photocopy. West did not present any testimony that the original was ever filed, and there was no explanation by either side of what happened to the original. Thus the only credible evidence presented to the court was that the agreement on file was not the original but was a photocopy. Furthermore, it is clear that the reproduction that was filed was never actually, physically, and manually signed. Therefore, the second issue before the court may be more precisely stated as whether a security inter*385est can be perfected by filing a reproduction of a security agreement, and if so, whether that security agreement must be actually, physically, and manually signed or authenticated by the debtor to be effective.
To be effective, a financing statement must contain the names and addresses of the secured party and the debtor, a description of the collateral, and it must be signed by the debtor.1 Tex.Bus. & Comm. Code Ann. § 9.402(a) (Supp.1980). Section 9.402(a) also provides that
[a] copy of the security agreement is sufficient as a financing statement if it contains the above information and is signed by the debtor. A carbon, photographic or other reproduction of a security agreement or a financing statement is sufficient as a financing statement if the security agreement so provides or if the original has been filed in this state.
At this point it should be noted that the UCC-1 form financing statement filed with the security agreement was not sufficient to perfect a security interest because it did not have any description of the collateral and because it was not signed by the debt- or. Therefore, if West’s security interest is properly perfected it is because the copy of the security agreement filed meets the requirements of § 9.402.
The copy of the security agreement on file with the secretary of state does not provide that a reproduction is sufficient as a financing statement, and there is no evidence that the original agreement was filed in this state. This leaves only the possibility that the security agreement is sufficient as a financing statement under the first sentence quoted above. The copy of the security agreement on file provides all of the information required by § 9.402: it has the names and addresses of both parties and a list of the collateral covered by the security agreement. The only question that remains is whether it is signed by the debtor.
The trustee takes the position that the copy of the security agreement on file is ineffective as a financing statement because it is not actually, physically and manually signed by LCI and therefore is not signed by the debtor as required by § 9.402(a).
The term “signed” is defined as including “any symbol executed or adopted by a party with present intention to authenticate a writing.” Tex.Bus. & Comm.Code Ann. § 1.201(39) (1968). Comment 39 to § 1.20.1 states that the question is always “whether the symbol was executed or adopted by the party with present intention to authenticate the writing.”
Research reveals only two cases that deal with the validity of photocopied signatures on financing statements. In In re Kane, 1 UCC Rep. 582 (Bank.Ct.E.D.Pa.1962), the court held that a mere photocopy of a financing statement was not signed by the debtor because “signed” meant “an actual signature manually produced by a writing instrument in the hand of the signer in direct contact with the document being executed.” Id. at 587. On the other hand, in In re Bennett, 6 UCC Rep. 994 (Bank.Ct.W.D.Mich.1969), the court upheld the effectiveness of a photocopy of a security agreement filed as a financing statement against a bankruptcy trustee’s challenge that it was not signed by the secured party, as was then required by § 9.402. The court gave three reasons for its ruling. First, the court said that § 1.102 of the Uniform Commercial Code (hereinafter referred to as the Code) states that the Code is to be liberally construed to promote the policies underlying the Code. Second, the court noted that the policy underlying § 9.402 of the Code is to provide a system of notice filing and not to penalize secured creditors for technical imperfections. Finally, the court cited § 9.402(h) which provides that minor errors which are not seriously misleading do not invalidate a financing statement. Id. at 996.
Keeping in mind the policies underlying § 9.402, the court believes that the better view is represented by Bennett and *386that the security agreement here is effective as a financing statement. When Mr. Walters signed the security agreement with West he clearly intended to authenticate the writing. The reasonable inference is that when he signed the security agreement he then also intended to adopt his signature on accurate photocopies made for the purpose of notice filing in order to perfect a security interest. The purpose of the Code’s filing system is to provide notice of existing security interests to potential creditors; it was not designed to serve as a statute of frauds. The goal of the Code is to “simplify, clarify, and modernize the law governing commercial transactions.” Tex. Bus. & Comm.Code Ann. § 1.102(b)(1) (1968). Under the present circumstances the assertion by the trustee that the security agreement should not be given effect as a financing statement because it is not signed by the debtor is overly technical and does not promote the policy of notice filing. There is no question of the accuracy of the security agreement. In fact, a search made by the secretary of state’s office revealed West’s security interest and showed the names and addresses of both parties. The error, if any, in filing a photocopy which has not been actually, physically, and manually signed by the debtor is one which is minor and not seriously misleading.
The trustee also contends that both the security agreement and the UCC-1 form financing statement are defective, that two defective documents are insufficient to perfect West’s security interest, and that one defective document cannot be used to cure the deficiencies of the other. See Travelers Indemnity Co. v. First National Bank of Jackson, 368 So.2d 836, 25 UCC Rep. 1455 (Miss.1979). The trustee further contends that even if the security agreement filed by West is not deficient it is still ineffective because when a security agreement and a financing statement are filed together (as is the case here), the financing statement controls; since the UCC-1 form financing statement filed by West is defective, the trustee concludes that the security interest is unperfected. See In re Uptown Variety, 6 UCC Rep. 221 (Bank.Ct.D.Or.1969).
Travelers Indemnity is distinguishable because the court has concluded that the security agreement alone is sufficient as a financing statement and it therefore does not need the UCC-1 form to cure any deficiencies. Uptown Variety does state that when a security agreement and a financing statement are filed simultaneously as a single filing, the security agreement “is in all respects superfluous, at least insofar as indexing is concerned.” (emphasis added) Id. at 224. In that case the financing statement listed the debtor as the secured party and the secured party as the debtor, while the security agreement correctly listed the parties. The filing clerk indexed the documents under the name of the secured party and not under the name of the debtor. The court reasoned that the filing officer should be able to look to the financing statement rather than to the security agreement to determine the name under which the documents should be indexed. Since the financing statement listed the wrong party as the debtor and would not be discovered by a person searching under the name of the debtor, the court held that the security interest was unperfected. The case does not stand for the proposition that when a security agreement and a financing statement are filed together, the financing statement will necessarily control for all purposes. Here, it is undisputed that the documents were correctly indexed, and this court concludes that for purposes of determining whether all of the elements required by § 9.402 are present, the financing statement does not necessarily control over the security agreement. Since there were no indexing errors and no potential creditors would have been misled by the filing, it is reasonable to allow the security agreement to control over the financing statement. A potential creditor searching the records would find the financing statement and the security agreement. Since both the UCC-1 form financing statement and the security agreement were correctly indexed and potential creditors would not be misled, it seems proper that the security agreement should be given effect as a financing statement.
*387To sum up, West has a valid security interest which was perfected by the filing of the security agreement with the Texas Secretary of State’s office. The security agreement is effective as a financing statement because it has all the information required by statute and it is signed by the debtor.
A judgment conforming with this opinion is being entered this date.
. Contrary to the trustee’s assertion, the signature of the secured party on the financing statement is no longer required. Tex.Bus. & Comm. Code Ann. § 9.402(a) (Supp.1980). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488901/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE came on to be heard before the undersigned Judge of this Court for trial on the complaint for reclamation filed by the Plaintiff. The Defendant, 18TH AVENUE DEVELOPMENT CORP., filed an answer to the complaint and the Defendant/Trustee filed an answer and counterclaim. The Court heard testimony of witnesses, received various documents and exhibits in evidence and heard argument of Counsel. The Court being fully advised in the premises makes the following Findings of Fact and Conclusions of Law.
The Plaintiff holds a duly perfected security interest in certain personal property in the possession of the Defendants, all of which was described in the exhibits admitted in evidence and testimony at trial. This Security Agreement between 18TH AVENUE DEVELOPMENT CORP. and the Plaintiff was assigned to SOUTHEAST FIRST NATIONAL BANK OF MIAMI by the Plaintiff.
Prior to the institution of the Chapter 11 Proceedings herein, the Debtor, 18TH AVENUE DEVELOPMENT CORP., was in default under the terms of said Security Agreement by failing to pay installments due. Consequently, the Security Agreement was reassigned to the Plaintiff. The Plaintiff is the present holder and owner thereof.
The Plaintiff has a claim against the Debtor in the sum of Thirty-one thousand Nine hundred and Sixty-six dollars and forty-three cents ($31,966.43) which is the unpaid balance due under the terms of the aforesaid Agreement. The property securing the indebtedness from 18TH AVENUE DEVELOPMENT CORP. to the Plaintiff has a value of Six thousand dollars ($6,000.00).
This property, securing the plaintiff’s claim, was included in the Agreement for Sale of certain model homes which the Trustee proposes to sell.
11 U.S.C. § 506 provides for the separation of an undersecured Creditor’s claim into two parts. One part is secured to the extent of the value of the collateral and one part which represents the balance to be allowed as an unsecured claim. The value of the collateral is undisputed. I therefore conclude that the Plaintiff has a secured claim in the sum of Six thousand dollars ($6,000.00). The balance of the Plaintiff’s claim in the sum of Twenty-five thousand Nine hundred and Sixty-six dollars and forty-three cents ($25,966.43) should be allowed as an unsecured claim.
A Judgment will be entered in accordance with these Findings and Conclusions. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488902/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE came on to be heard before the undersigned Judge of this Court in this Adversary Proceeding. The trial had been continued in accordance with instructions made in open Court at the trial as well as per the written Order of this Court dated May 16, 1980.
The Trustee has filed his report on the status of mechanics’ lien claimants with regard to the real property owned by the Debtor. A copy of said report has been served upon all parties as reflected in the mailing list attached to the “Trustee’s Report of Liens filed in re 18th Avenue Development Corp., Bankruptcy.”.
This Court’s Order continuing the hearing and directing the Trustee to make a report, specifically provided that the Contract Vendees reserved the right to contest the amount, validity or priority of any liens relative to any lot particularly related to them. A copy of that Order dated May 16, 1980 was likewise served upon all those parties reflected on the attached mailing list, including mechanics lien claimants and contract vendees.
After the Trustee filed his report in accordance with the requirements and directions of that Order, various lien claimants and contract vendees filed responses to that report which are a part of this record. In addition, the Trustee served upon all interested parties a statement of his position with regard to the claims of lien filed by various mechanics lien claimants. That likewise is a part of this record.
The Court heard testimony and examined and reviewed various exhibits in evidence. Argument of Counsel was made with regard to the respective lien claimants. The Court being fully advised in the premises, makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
1. Due notice of the entry of the Orders above stated and of this hearing, as well as a copy of the Trustee’s Report of Liens and Statement of Position has been served upon each of the lien claimants by due course of mail at their last known address.
2. Each of the lien claimants as reflected in the Trustee’s Report of Liens has filed a mechanic’s lien claim against real property owned by the Debtor in Dade County, Florida. Said claim of lien was filed on the date and recorded in the Book and Page in the amount reflected in the Trustee’s Report of Liens.
3. The following lien claimants are hereby stricken based upon objections to the claim of lien made either by the Trustee or Counsel for contract vendees:
*535(a) BRIDGE LUMBER, Claim of lien filed 7/31/79, OR Book 10469, Page 1790-$6,409.95. This claimant agreed that the claim was invalid.
(b) DESMOND & SNELLING, Claim of lien filed 8/7/79, OR Book 1077, Page 522-$22,949.21. The claim of lien on Lot 57 and Lot 52 is stricken. The claimant is entitled to a lien in the sum of $22,949.21 on the Clubhouse property only.
(c) DIVERSIFIED, claim of lien filed 6/22/79, OR Book 10432, Page 1633-$29,-984.50 is stricken.
(d) JOHN ABELL, claim of lien filed 7/18/79, OR Book 10457, Page 283-$9,-344.45 is stricken.
(e) MASONQUIP, claim of lien filed 6/26/79, OR Book 10434, Page 1313-$2,-207.47 is stricken.
4. The following claims are hereby stricken, the Court finding that they, over the objections of the Trustee and/or Counsel for contract vendees, have failed to present any evidence sustaining their entitlement to a claim of lien:
(a) SYSCON
(b) PORT OF SAN
(c) LORENE
(d) ALL STEEL ROLLED
(e) CENTRAL CONCRETE
(f) FARREY’S HARDWARE
(g) M. A. BRUDER
(h) LONE STAR (LINDSLEY)
(i) HIALEAH AIR
(j) REESMAR ,
(k) ROLL PLUMBING
(l) LA BELLE ELECTRIC
(m) GLORI ANN
(n) MIKE AULTON MASONRY
(o) MIAMI ELEVATOR
(p) STUDIO LIGHTING
(q) DONALD McINTOSH
(r) GUTTERS UNLIMITED
(s) DIXIE METAL
(t) CHUCK’S BACKHOE
(u) KRAMER STEPHENSON
(v) MIAMI RUG
(w) LONE STAR FLA.
(x) HOLLYWOOD FLOORING
5. The following lien claimants are entitled to a claim of lien in the sums respectively following their names:
(a) HOLLYWOOD APPLIANCES
Lot 14 - $ 40.56
Lot 28 - $ 5,379.92 Lot 12 - $ 452.40
Lot 26 - $ 452.40
(b) PAVER SYSTEMS-$3,960.00.
(c) FIREDOOR-$2,897.00.
(d) F.H.A.-$25,897.92 plus interest to 6/3/79. The Court has reserved jurisdiction to allocate and prorate the foregoing sums allowed to the individual lots claimed of record.
(e) MODULAR PAVING-the claim of lien is allowed to be prorated equally to all lots.
(f) PIONEER ROOFING-the claims of lien of PIONEER ROOFING are allowed individually as follows:
Lot 32 - $ 274.43
Lot 27 - $2,035.00
Lot 29 - $2,413.11
Lot 10 - $ 825.44
Lot 7 - $3,300.00
Lot 6 - $1,462.07
Lot 8 - $1,014.60
Lot 9 - $1,271.70
Recreation Building - $11,300.00
7. The claim of lien of A.D. AIR DESIGN as to Lots 5,12,15 and 18 is stricken. The claims of lien on Lots 10 and 14 are allowed in the sum of $1,987.03 and $2,292.99 respectively. These claims of lien have been assigned to PIONEER METALS.
8. The claims of lien filed by SOUTH FLORIDA PLASTERING are allowed on respective lots as follows:
Lot 6 - $4,656.50
Lot 8 - $3,849.75
Lot 9 - $3,980.90
Lot 10 - $4,317.50
Lot 11 - $4,560.00
Lot 14 - $11,243.10
Lot 15 - $1,362.90
*536Lot 18 - $1,379.80
Lot 22 - $1,204.15
Lot 25 - $1,343.95
Lot 27 - $3,733.89
Lot 29 - $ 943.00
Lot 32 - $ 637.50
9. The claim of lien of BIG H is allowed only on the recreational building in the sum of $1,148.92. All other claims of lien are stricken.
10. FLORIDALE. The Claims of lien are allowed as filed except that the claim of lien on Lot 29 is amended to reflect an amount in the sum of $5,365.36.
11. The claim of EVENINGS DELIGHT is allowed on the following lots in their respective amounts.
Lot 25 - $ 267.28
Lot 29 - $1,640.68
Lot 14 - $ 41.18
Lot 23 - $ 866.37
Lot 27 - $1,360.73
12. The claim of ROOF STRUCTURES is allowed as filed in the sum of $32,866.00.
CONCLUSIONS OF LAW
1. Chapter 713 of the Florida Statutes governs generally the filing of liens against real property.
2. F.S. 713.09 contains a specific provision for those circumstances when a single claim of lien is sufficient. F.S. 713.09 provides in part:
“(1) A lienor shall be required to record only one claim of lien covering his entire ■ demand against such real property where the amount demanded is for labor services or materials furnished ... for more than one improvement to be operated as separate units on separate lots, parcel or tracts of land but improved in one continuous building operation, such as, but not limited to, a housing or multiple unit dwelling project . under the same direct contract . . . ”
3. F.S. 713.09 defines “direct contract” as a contract . . . between the owner and any other person.
4. 11 U.S.C. § 102(1) construes the term “after notice and a hearing”. The code provides that such phrase means such notice as may be appropriate in the particular circumstances and the opportunity for a hearing may be appropriate.
5. A summons and notice of trial, as well as any other Court order governing the procedure for notification of hearing may be served upon a party by due course of mail at their dwelling house or usual place of abode or where they regularly conduct their business or profession. This is true of individuals and of domestic or foreign corporations, partnerships or other unincorporated associations.
6. Rule 704 R.B.P. provides that notices of hearings may be served upon all parties by due course of mail. Rule 203(a) R.B.P.
7. Each of the mechanics’ lien claimants and defendants herein, as well as the contract vendees, had due notice of the hearing on the determination of the validity, priority and amount of liens, the Trustee’s Report of Liens and the Trustee’s Statement of Position.
8. This Court has jurisdiction of the real property of the Debtor and may determine the validity of liens thereon. 11 U.S.C. § 541, § 506; 28 U.S.C. § 1481.
A Final Judgment will be entered in accordance with the Findings and Conclusions contained herein. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488904/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The issue before us is whether we have summary jurisdiction to authorize the trustee to sell, free and clear of liens, certain realty in which the bankrupt estate claims an equitable interest where there has been a timely objection to our jurisdiction by one who also claims an equitable interest in the property and where it appears that the bankrupt was never in possession of that property. We conclude that we do not have summary jurisdiction to authorize the sale of that property because it is not in the actual or constructive possession of this court.
*651The parties have stipulated to the facts of this case which are as follows:1 On April 13, 1977, Carl W. and Shirley A. Geesey conveyed to Central and Western Chester County Industrial Development Authority (“the Authority”), for a purported consideration of $24,000,2 a tract of land which they owned by the entireties in the Borough of Parkesburg, known as the Rental Office Building. On that same day the Authority obtained another tract of land, located in Sadsbury Township and known as the Industrial Tract, apparently for a consideration of $140,000.3 To obtain the funds to pay for those two properties, the Authority borrowed $164,000 from the National Bank and Trust Company of Kennett Square (“the Bank”), executing a mortgage on the two properties. Carl and Shirley Geesey also executed an agreement by which they personally guaranteed the loan from the Bank to the Authority. On that same day the Authority entered into an installment sales contract with Geesey General Contractors, Inc. (“the bankrupt”) wherein the Authority agreed to convey its interest in the above two properties to the bankrupt for the price of $164,000 in accordance with the terms of that contract. The Authority assigned its interest in that installment sales contract to the Bank as further collateral for its loan.
On June 27, 1979, the bankrupt filed its petition in bankruptcy listing both the Rental Office Building and the Industrial Tract as realty in which the bankrupt had an interest. The bankrupt’s schedules also indicated that there was currently owing to the Bank the sum of $150,063.40 as a result of the transaction with the Authority and that the debt was secured by the above two properties, title to which was held by the Authority. On September 12, 1979, the bankrupt filed amended schedules which deleted all reference to the Rental Office Building.
On September 18, 1979, Dennis J. Ward was elected trustee of the bankrupt and, within the time set by the court, the trustee assumed the installment sales contract between the bankrupt and the Authority. On February 15, 1980, the court-appointed appraiser filed appraisals stating that the fair market value of the Industrial Tract was presently $165,000 and the fair market value of the Rental Office Building was $74,-000. On February 27 the trustee filed two separate complaints seeking leave to sell each of the properties free and clear of all liens, and alleging that the only non-avoidable lien against the two properties is that held by the Bank in the approximate amount of $168,000.
On March 21, 1980, Shirley Geesey4 filed a motion to dismiss the complaint dealing with the Rental Office Building asserting that the bankruptcy court is without summary jurisdiction to authorize the sale. Mrs. Geesey asserted that the bankrupt had no title to that property — that the equitable title was in her and not in the bankrupt, because the property had been conveyed to the Authority by the Geeseys only to serve as additional security for the loan with which the Authority bought the Industrial Tract. In support of her motion, Mrs. Gees-ey submitted two letters from officers of the Authority and the Bank admitting that that was the purpose of the conveyance of the Rental Office Building. Mrs. Geesey also submitted an affidavit in which she stated under oath that the Rental Office Building was not in the possession of the bankrupt and had never been in its possession. Rather, she stated that the Rental Office Building was presently in the possession of the County of Chester as tenant *652under a lease dated July 1, 1977, in which Carl and Shirley Geesey are named as the landlords.
At the hearing held on this matter, the trustee contended that, even if Mrs. Gees-ey’s assertions about the purpose of the conveyance were true, the equitable title to the property was in the bankrupt by virtue of the installment sales contract, there being no agreement by the Authority or the bankrupt to convey that property back to the Geeseys at any time. The Bank also appeared, through counsel, at the hearing and objected to the sale of the Industrial Tract if the Rental Office Building was not also sold. The basis of the Bank’s objection was that the value of the Industrial Tract alone was not enough to cover the costs of the sale and its mortgage in full.
We conclude that on the facts of this case we are without summary jurisdiction to authorize the sale by the trustee of the Rental Office Building. In order for the bankruptcy court to have summary jurisdiction over a controversy concerning the title to property, that property must be in the actual or constructive possession of the bankruptcy court.5 Where, however, a controversy involves property in the actual or constructive possession of a third party, asserting a bona fide adverse claim, the bankruptcy court has no jurisdiction to determine summarily that party’s title without his consent.6 As the United States Court of Appeals for the Eighth Circuit stated in Magnolia Petroleum Co. v. Thompson :7
It is now settled that the bankruptcy court has power in a summary proceeding to adjudicate, without consent, controversies concerning the title to property the physical possession of which is in the actual or constructive possession of the trustee, and with consent of the adverse claimants, the title to property not in the possession of the trustee; but the court is without power to adjudicate adversary claims to the title to property, without consent, not in the actual or constructive possession of the trustee.8
In the ease at bench, the property in controversy, the Rental Office Building, is not in the possession of the trustee and, therefore, is not in the possession of this court. Instead, the property is in the possession of the tenant of one who claims the equitable title to that property. The affidavit and letters produced by Mrs. Geesey, as well as the stipulated facts, demonstrate that Mrs. Geesey’s equitable claim to the property is more than merely colorable.9 Further, since Mrs. Geesey made a timely objection to the summary jurisdiction of this court, there obviously has been no consent.10 Therefore, we are without jurisdiction to decide whether the bankrupt estate or Mrs. Geesey has the equitable title to the Rental Office Building. That question will have to be decided in a plenary suit11 and, until that time, we cannot authorize a sale by the trustee of the property. Consequently, lacking summary jurisdiction, we will dismiss the complaint of the trustee to sell the Rental Office Building.
. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. The deed of conveyance from Carl and Shirley Geesey, attached as Exhibit “A” to the stipulation of facts, states that the consideration therefor was $24,000.
. The Industrial Tract was bought from Joseph P. McGrail. The deed of conveyance, attached as Exhibit “B” to the stipulation of facts, states that the consideration therefor was $140,000.
. Carl Geesey died on February 3, 1979. Shirley Geesey thereupon succeeded to his interest in their entireties property including their interest, if any, in the Rental Office Building.
. See 2 Collier on Bankruptcy ¶ 23.04[2] (14th ed.) and cases cited therein.
. Id.
. 106 F.2d 217 (8th Cir. 1939), rev’d on other grounds, Thompson v. Magnolia Petroleum Co., 309 U.S. 478, 60 S.Ct. 180, 84 L.Ed. 513 (1940).
. 106 F.2d at 222.
. See 2 Collier on Bankruptcy ¶| 23.06 (14th ed.)
. See id. at ¶ 23.08.
. See id. at ¶ 23.02 & ¶123.12-¶ 23.16. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488922/ | MEMORANDUM OF DECISION1
JON J. CHINEN, Bankruptcy Judge.
On August 4, 1980, after plaintiff had rested its case, defendant Investment Mortgage Incorporated, hereinafter referred to as “IMI”, orally made a motion to dismiss the complaint of plaintiff, Waikiki Hobron Associates, hereinafter referred to as “WHA”. This matter was heard on August 4, 5, and 6, 1980.
On August 6, 1980, plaintiff’s motion to voluntarily dismiss Counts II, VI, and VII of its complaint was granted orally by the Court without objection from defense counsel.
Based upon the arguments of counsel, the records, files and evidence adduced herein, the Court hereby denies the defendant’s motion to dismiss the remaining Counts I, III, IV, and V of WHA’s complaint.
IMI asserted its motion to dismiss after WHA had rested its case pursuant to Rule 741 of the Rules of Bankruptcy Procedure which adopts Rule 41 of the Federal Rules of Civil Procedure. Under Rule 41(b) the court as the trier of facts may grant a motion for involuntary dismissal on the ground that upon the facts and the law the plaintiff has shown no right to relief.
Under Rule 41(b), the trial court is not compelled to dismiss the plaintiff’s claim even assuming there is no evidence to support plaintiff’s case. The court has the option of either reserving a ruling on the motion to dismiss until the close of all the evidence or render a judgment against the plaintiff. K. King & G. Shuler Corp. v. Petitioning Creditors, 427 F.2d 689 (9th Cir. 1970); Smith Petroleum Service, Inc. v. Monsanto Chemical Co., 420 F.2d 1103, 1116 (5th Cir. 1970).
In reviewing the evidence in a non-jury case, on a motion to dismiss for failure to prove a case, the court need not review the evidence in the light most favorable to the plaintiff. Instead, the judge has a duty to take an unbiased view of all the evidence, both direct and circumstantial, and evaluate it and accord it the weight that he believes it is entitled to receive. Weissinger v. United States, 423 F.2d 795 (5th Cir. 1970), Southern Arizona York Refrigeration Co. v. Bush Manufacturing Co., 331 F.2d 1, 6 (9th Cir. 1964), Island Service Co., Inc. v. Perez, 309 F.2d 799 (9th Cir. 1962); Barr v. Equitable Life Assurance Society of the United States, 149 F.2d 634 (9th Cir. 1945), United States v. Westinghouse Electric Corp., 471 F.Supp. 536 (N.D.Cal.1978).
*645In this case the issues are complex and there exist a number of disputed facts which are critical for resolution of this case. Therefore, in the interest of obtaining a complete and full record for the trial court, the Court finds it must deny the defendant’s motion to dismiss and put the defendant to its proof on each of WHA’s four remaining counts. The case will then be decided when all the evidence has been adduced.
This denial of IMI’s motion amounts to no more than a refusal to enter judgment at this time and constitutes at most “a tentative and inclusive ruling on the quantum of plaintiff’s proof.” Armour Research Foundation of Illinois Institute of Technology v. Chicago, R.I. & P.R. Co., 311 F.2d 493 (7th Cir. 1963). When a Motion such as IMI’s is not granted, the merits of the case are finally determined in light of all of the evidence received at trial. K. King & G. Shuler Corp. v. Petitioning Creditors, 427 F.2d 689 (9th Cir. 1970).
. Findings of Fact and Conclusions of Law must be made only where a judgment of dismissal is entered at the conclusion of plaintiffs case based on the merits. O’Brien v. Westinghouse Electric Corp., 293 F.2d 1 (3d Cir. 1961), Civil Aeronautics Board v. Friedkin Aeronautics, Inc., 246 F.2d 173 (9th Cir. 1957). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488923/ | OPINION AND ORDER ON TRUSTEE’S OBJECTION TO CLAIM OF EXEMPT PROPERTY
G. L. PETTIGREW, Bankruptcy Judge.
Debtor’s claim of a homestead exemption, pursuant to § 2329.66(A)(1) O.R.C., was objected to by the trustee in this case. The trustee contended that neither the debtor nor her dependents were using premises at 1220 Geers Street, Columbus, Ohio, as a residence at the time of filing her voluntary petition. Following debtor’s opposition to the objection to claim of exempt property, this matter came on for an evidentiary hearing.
*726FACTS
On May 15, 1980, when the debtor filed her Chapter 7 petition, she listed her post office address as 80 70th Avenue, Pataska-la, Ohio. In her statement of affairs, she indicated the Pataskala address as her residence. However, in the Schedule B-4, Property Claimed as Exempt, she listed her residence as 1220 Geers, Columbus, Ohio, and claimed a homestead exemption of $5,000, pursuant to § 2329.66(A)(1) O.R.C. The debtor disclosed no ownership interest in the Pataskala premises which she testified were owned by her new husband at the time of her filing. The debtor and her new husband had each listed his/her house for sale at the time of the filing of the bankruptcy petition in this case. In addition, the debtor testified that she and her husband both intended to live permanently in whichever house was not sold.
On May 15, 1980, the debtor was not living on Geers, but was in the process of moving to Pataskala. Some of her personal items were left at Geers. Further, the debtor testified that work needed to be done on the house on Geers because there was no running water in the premises on the date of filing. In addition, the debtor had not moved back into those premises as of the time of the hearing on the trustee’s objection. Debtor testified that she had received an offer of $30,000 for the Geers property, prior to filing, but felt that that was not enough for the property.
In the hearing on the trustee’s objection, the debtor testified concerning her intention to keep her homestead. At page 3 of the transcript, the following appears:
“Q. Now, at the time you filed your petition in your bankruptcy, which was on May 15, were you living in the property at 1220 Geers?
“A. I was not actively. I did not have all my possessions there.
“Q. Was there any reason why you were vacating the premises?
“A. In order to facilitate the sale of the house and/or for the subcontractor to go in and do the necessary work to sell the property.”
At p. 5 she testified:
“Q. Now Mrs. Orwig, in the event that you don’t sell your property, what’s your intention?
“A. To move back to the property.”
At p. 8 she testified:
“Q. In May of 1980 when you moved your things out, did you have any intention of moving back into that house?
“A. Yes.
“Q. And that intention was to move back in if you did not sell?
“A. If I did not sell.”
DISCUSSION
The debtor’s right to the homestead exemption claimed in this case is determined by Ohio law since the Ohio Legislature denied debtor’s use of exemptions provided in 11 U.S.C. § 522(d). However, the essence of the right to a homestead exemption, under Ohio law as well as Federal Law, is based on the debtor’s designation and occupancy of the real or personal property as a residence. If the debtor occupies the residence when the homestead exemption is claimed, the claim is seldom challenged. However, where the debtor does not occupy the premises, the constructive use or occupancy must be proved. Ohio law provides an exemption for the debtor in:
“The person’s interest, not to exceed five thousand dollars, in one parcel or item of real or personal property that the person or a dependent of the person uses as a residence.” 2329.66(A)(1) Ohio Rev.Code.
Ohio courts have long recognized the intent to occupy a homestead as a necessary element to establishing an allowable homestead exemption. In the early case of Jackson v. Reid, 32 Ohio St. 443 (1877), the court dealt with a debtor who was temporarily out of the homestead, leaving furniture behind and declaring an unequivocal intention to remain and to reside exclusively and permanently on the homestead at some indefinite time in the future. At p. 447, the court said:
*727“It may well be conceded that a man cannot have two homesteads. If he gives up his homestead and moves elsewhere, making the latter residence his home, his right to the former is gone. What the homestead is, is a question of fact. If the party has been living and is living upon it at the time exemption is claimed, his right cannot be disputed. And a mere temporary absence will not destroy his right any more than it will change his domicile. And there may be an enforced absence, under which the homestead right may still exist, as in the case of Kelly v. Duffy [31 Ohio St. 437], where the dwelling-house was burned down, and the debtor and his family removed from the premises without intending to rebuild. This was held no abandonment of the right to the homestead.”
In Jackson, the trial court found that there was no intention to abandon the homestead. The debtor merely, temporarily removed from the homestead with an intent to return. Ohio law has recognized allowance of a homestead in situations where there has been a temporary removal, but no intent to abandon the homestead. Wetz v. Beard, 12 Ohio St. 431 (1861).
In attempting to resolve the objection to debtor’s claim of a homestead exemption, at least four elements of proof are missing. First, neither the debtor nor her dependents occupied the premises at the time of the claim of exemption. Second, in the statement of affairs, the debtor designated her residence as the Pataskala residence. Third, the debtor was not forced to leave the Geers Avenue premises. Fourth, the debtor had no specific intent to return to the premises or to preserve a homestead at the premises on Geers.
In support of allowance of the homestead exemption, we find that the debtor has properly claimed the exemption in Schedule B — 4 of a homestead. Also, the debtor left some personal effects in the home while relocating to Pataskala. Finally, the debtor expressed an intent to permanently reside in the property owned by the debtor or her husband which was not sold.
The key element in this case is the debt- or’s intent to maintain a homestead. Debt- or’s expressed intent was to live in the premises which could not be sold or which received less favorable offers of sale. Debtor’s actions expressed an intent to reside in the Pataskala property, which, at the time of filing, had less equity according to the debtor’s calculation.
From these findings, the Court concludes that debtor’s claim of a homestead exemption in premises at 1220 Geers cannot be sustained. Debtor abandoned the homestead prior to filing her petition. Wherefore, the trustee’s objection is SUSTAINED.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488925/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW ON COMPLAINT TO RECOVER REAL PROPERTY, FOR RELIEF FROM AUTOMATIC STAY AND/OR FOR ADEQUATE PROTECTION
JON J. CHINEN, Bankruptcy Judge.
On April 8, 1980, Peariridge Mall Joint Venture 315068 (“Peariridge”) filed the above-entitled Complaint with this Court. The Debtor’s answer to the Complaint was filed on April 30, 1980 and a preliminary hearing on the issue of adequate protection was held by this Court on May 1, 1980. At the preliminary hearing and at the trial of the Complaint, the parties stipulated that evidence and exhibits introduced at hearings on a motion filed by Peariridge seeking dismissal of these proceedings, and evidence and exhibits introduced at the preliminary hearing be introduced by reference in this matter and be considered by this Court as a part of the evidence presented in the trial of the above-entitled complaint. Debtor raised the additional issue of whether certain electrical and common area maintenance charges assessed by Peariridge were proper. Further testimony was taken on June 4 and 5, 1980. This Court, having heard and considered all of the evidence and having taken judicial notice of its records in a prior proceeding, now makes the following findings of fact and conclusions of law, as follows:
FINDINGS OF FACT
1. On March 14, 1980, International Kitchens (hereinafter “Debtor”) commenced these proceedings by the filing of a voluntary petition under Chapter 11 of the Bankruptcy Code.
2. Debtor is a Hawaii Limited Partnership, duly registered with the State of Hawaii.
3. The filing of these proceedings followed, by just three (3) months and one (1) week, this Court’s dismissal for cause of a prior proceeding voluntarily filed by Debtor under the provisions of Chapter XII of the “old” Bankruptcy Act. The Chapter XII proceeding had been filed on January 10, 1977.
4. In dismissing the Chapter XII proceeding this Court found, inter alia, that:
a. The Debtor was in substantial administrative rent default;
b. The Debtor was in violation of Court orders by failure to pay rent and failure to file operating reports;
c. The Debtor was operating at a loss which was in excess of One Hundred Ninety Thousand Dollars ($190,000.00) at the beginning of 1979;
d. The Debtor was about to lose its only asset through a foreclosure approved by the Bankruptcy Court;
e. The Debtor was without ability to propose or confirm any viable plan of arrangement; and
*758f. The Debtor was without equity in any property, but nevertheless, before the Court in a Chapter proceeding filed in January 1977, and approaching three (3) years in age.
5. On the date of its dismissal, the Chapter XII proceeding had been ongoing for just one month less than three (3) years without any improvement in the Debtor’s financial position.
. 6. The Debtor’s average losses of approximately Ninety-Five Thousand Dollars ($95,000.00) per year in 1977 and 1978 continued through 1979, during which period the Debtor’s gross sales dipped substantially below 1977 levels.
7. This Court has now learned that the Debtor failed to pay a substantial portion of its administrative tax obligations during the course of its Chapter XII proceeding. Whereas its tax debt on the filing of Chapter XII in 1977, was Twenty-Eight Thousand Eight Hundred Forty-Eight Dollars And Twenty-Eight Cents ($28,848.28), its tax debt on the filing of this Chapter 11 proceeding increased to Ninety-Eight Thousand Five Hundred Ninety-Five Dollars And Ninety-Nine Cents ($98,595.99).
8. Whereas no wages were owed by the Debtor prior to the 1977 filing, the Debtor now admits to priority wage debt incurred just prior to the filing of Chapter 11 of Sixteen Thousand Dollars ($16,000.00).
9. Pearlridge is the owner of the property at Pearlridge Mall Shopping Center, Honolulu, Hawaii, at which the Debtor’s fast food restaurant operations are conducted. Pearlridge is successor in interest to Kaonohi Center Company with regard to eight (8) leases (hereinafter the “Leases”) executed by Debtor as tenant, dated April 20, 1973, which Leases demise the restaurant premises and the dining area surrounded by and used in common by the eight restaurants. The Leases are more specifically described by short forms thereof, executed on March 12, 1974, and filed for record in the Bureau of Conveyances of the State of Hawaii in Liber 9811 at Page 393, (Premises No. 12-15A); Liber 9811, Page 404 (Premises No. 12-16); Liber 9811 at Page 415 (Premises No. 12-17); Liber 9811 at Page 426 (Premises No. 12-19); Liber 9811 at Page 437 (Premises No. 12-20); Liber 9811 at Page 448 (Premises No. 12-24); Liber 9811 at Page 459 (Premises No. 12-25); and Liber 9811 at Page 382 (Premises No. 12-15).
10. During the course of the Chapter XII proceeding a stipulation was entered into between the Debtor and Pearlridge entitled Stipulation Re Resolution Of Various Disputes And Order Thereon (hereinafter the “Stipulation”).
11. In approving that Stipulation, this Court ordered that if Debtor defaulted in “certain payment obligations” to Pearl-ridge, and if those defaults were not cured by either the Debtor or its secured creditor, American Security Bank and Bank of Honolulu (“Bank”) within sixty (60) days after written notice of default, then any and all rights that either Debtor or Bank might claim in the “Leases” with Pearlridge would automatically terminate and neither the Debtor nor the Bank would thereafter have any rights whatsoever in the Leases.
12. The “certain payment obligations” required under the Stipulation included monthly installment payments of Four Thousand Dollars ($4,000.00) per month to Pearlridge on account of arrearages and attorneys fees owed by the Debtor to Pearl-ridge.
13. The Debtor made eleven (11) installment payments, the last of which was in and for the month of May 1978.
14. Notices of default were properly served upon the Debtor and Bank by Pearl-ridge on June 20,1979 and again on July 25, 1979, but neither the Debtor nor the Bank made another hu bailment payment, nor did either seek permission of this Court to terminate or suspend payments pending litigation as to the total amount of attorneys fees owed to Pearlridge.
15. Under the Stipulation Thirteen Thousand Two Hundred Six Dollars And Twenty-Eight Cents ($13,206.28) of the Forty-Four Thousand Dollars ($44,000.00) in installment payments made was to be *759applied against arrearages owed to Pearl-ridge, and the balance was to be applied against attorneys’ fees owed Pearlridge by the Debtor.
16. This Court has found that the Debt- or owes Pearlridge Sixty-One Thousand Two Hundred Ninety-Nine Dollars And Twenty Cents ($61,299.20) in attorneys’ fees, plus Eight Thousand Nine Hundred Ninety-Five Dollars And Fifty-Nine Cents ($8,995.59) in costs, plus interest, against which the Debtor is entitled to set off attorneys’ fees awarded the Debtor by this Court. When the balance of the aforementioned installment payments received is applied thereto, there still remains a balance owing by the Debtor to Pearlridge for attorneys’ fees of Thirty-Nine Thousand Five Hundred One Dollars And Seven Cents ($39,501.07), less Debtor’s allowed offset of Eight Thousand Seven Hundred Forty-Three Dollars And Fifty Cents ($8,743.50), for a total of Thirty Thousand Seven Hundred Fifty-Seven Dollars And Fifty-Seven Cents ($30,757.57) plus interest and Pearl-ridge’s claim that an amount for general excise tax should be added thereto.
17. Pursuant to the “Stipulation”, any and all of the Debtor’s leasehold rights at or with Pearlridge, terminated on August 20,1979, sixty (60) days after notice of default was duly given, and therefore, the Debtor’s rights and responsibilities under the Leases ceased to exist on August 31, 1979, the last day of that monthly rental period.
18. Thereafter, the Debtor was a “holdover” tenant responsible for the payment of rent to Pearlridge for the reasonable value of the use and occupancy of its premises.
19. Where, as in this case, there is no contrary evidence presented, it is appropriate that reasonable rent for use and occupancy of premises be determined to be the lease rates. As a matter of fact, the issue of the value of reasonable use and occupancy of the very same premises was litigated by the same parties in the Chapter XII case, wherein this Court decided that the payments called for under the subject leases did constitute the reasonable rent for the use and occupancy of the premises.
20. On April 1, 1980, Pearlridge, pursuant to its various Leases with all tenants at Pearlridge Mall, readjusted electrical and common area maintenance charges for 1979 and the first quarter of 1980, and Pearl-ridge also increased future monthly electrical and common area maintenance charges for mall tenants on April 1, 1980.
21. Pearlridge’s electrical rate adjustment was made in accordance with the recommendations of an expert electrical engineer retained by Pearlridge to determine the electrical charges and charge adjustments which Pearlridge could and should properly assess to mall tenants pursuant to the Leases.
22. The electrical charge adjustments and the increased electrical charges assessed against International Kitchens were less than allowed under the Leases and they properly constitute a part of the charges which Pearlridge was entitled to make under the Leases and for the reasonable use and occupancy of its premises for 1979 and the first quarter of 1980.
23. The correct electrical charge assessed against Debtor for 1979 and the first quarter of 1980 plus Hawaii general excise tax thereon, less electrical payments already made by the Debtor is Seventy-Six Thousand Six Hundred Twenty-Three Dollars And Fifty—Nine Cents ($76,623.59), which constitutes additional rental monies owed by the Debtor to Pearlridge under the Leases and for use and occupancy of the premises.
24. In addition, International Kitchens has failed to pay Pearlridge increased monthly electrical charges properly demanded of the Debtor by Pearlridge in the sum of Six Thousand Seven Hundred Seventy-Five Dollars And Forty-Five Cents ($6,775.45) per month beginning in April 1980, totalling Twenty Thousand Three Hundred Twenty-Six Dollars And Thirty-Five Cents ($20,326.35) through June 1980.
25. Pearlridge is not by its actions a wholesaler of electricity and its electrical *760charges and adjustments to the Debtor are not in violation of Hawaii P.U.C. Order No. 1849, Rule 15.
26. Pearlridge also passed on increased common area maintenance charges incurred in 1979 to its tenants which charge are also properly added under the Leases and as a part of rent for the reasonable use and occupancy of premises occupied by the tenants.
27. The reasonable and proper additional common area maintenance charge owed by International Kitchens for 1979 is One Thousand Six Hundred Thirty-Three Dollars ($1,663.00).
28. In December 1979, when Pearlridge was relieved from the automatic stay by virtue of this Court’s order dismissing the Chapter XII proceeding, Pearlridge notified the Debtor of the termination of its rights and thereafter refused to waive any of its rights by accepting Debtor’s tender of ar-rearages then owed and additional indebtedness thereafter incurred. Excluding the attorneys’ fees, electrical charges and common area reconcilement heretofore mentioned, Pearlridge has not received the following sums which are properly due and owing by the Debtor:
December 1979 Rent $ 20,478.81
January 1980 Rent 21,216.90
February 1980 Rent 21,216.90
March 1980 Rent 21,216.90
April 1980 Rent 21,279.11
Percentage Rent, January through December 1979 20,330.03
Percentage Rent, January through April 1980 3,373.84
First and Second Half 1979-80 Real Property Taxes 6,841.52
1979 Through March 1980 Merchant’s Association Dues 4,157.17
April, May and June 1980 Merchant’s Dues 1,149.57
$140,900.75
29. Therefore, the total owed by Debtor to Pearlridge through June 1980, prior to application of moneys tendered by the Debtor is Two Hundred Thirty-Nine Thousand Four Hundred Eighty-Three Dollars and Sixty-Nine Cents ($239,483.69), plus the heretofore mentioned attorneys’ fees, the full amount of which shall be the subject of another order of this Court.
30. Debtor has deposited One Hundred Thirty-Four Thousand Three Hundred Ninety-Five Dollars and Twenty-One Cents ($134,395.21) with the Clerk of the Circuit Court of the State of Hawaii, in Civil Action No. 49166, to be applied against rents owed by the Debtor to Pearlridge.
31. Said sum of One Hundred Thirty-Four Thousand Three Hundred Ninety-Five Dollars and Twenty-One Cents ($134,-395.21) constitutes a part of the rental monies owed to Pearlridge and should properly be paid over to Pearlridge to reduce the rental indebtedness owed to it by Debtor under the Leases and for the reasonable use and occupancy of the premises at Pearl-ridge Mall.
32. Neither the Debtor’s business operations nor its circumstances in general have changed in any manner whatsoever since the dismissal of its Chapter XII proceeding.
33. The Debtor has failed to comply with the orders of this Court. As of May 19, 1980, the Debtor had failed to pay monthly Chapter 11 rent for use and occupancy of the premises from the date of the filing of the proceedings, which this Court had ordered be paid no later than May 5, 1980, and the Debtor failed to pay the one month’s advance rent which the Court required be paid on or before May 15, 1980 as “adequate protection” to Pearlridge.
34. The Debtor continues to suffer losses in its operation and its estate continues to diminish.
35. American Security Bank and Bank of Honolulu (collectively “Bank”) are secured creditors of the Debtor.
36. As a result of protracted defaults, this Court, in February 1979, granted Bank relief from the Bankruptcy Act automatic stay provisions so that Bank might proceed to foreclose upon virtually all of the Debt- or’s assets. That State Court foreclosure proceeding is still pending and again stayed by this second bankruptcy filing.
*76137. Even if the Debtor’s leasehold rights had not terminated, the Debtor would have no equity in its property. The secured debt owed to Bank is at least Vs more than the highest appraised valuation made of the assets including the leasehold, and almost five times more than the only offer received by the Circuit Court in its year long attempt to effect a sale of the Debtor’s leasehold and personal property assets.
38. Even if the Debtor’s leasehold rights had not terminated, the Debtor would be and the Debtor is without ability to rehabilitate.
39. Even if the Debtor’s leasehold rights had not terminated, the Debtor would be and is without ability to effectuate a plan.
40. At present, reasonable rent for use and occupancy of the premises used by the Debtor at Pearlridge including electrical charges and merchant’s association dues is Twenty-Eight Thousand Four Hundred Thirty-Seven Dollars And Seventy-Five Cents ($28,437.75) per month.
41. The Debtor has displayed a continued history of late or missed rent payments under and without the jurisdiction of this Court.
42. The Debtor has no visible means and has failed to offer any means by which Pearlridge might be adequately protected if rental payments were again missed by the Debtor.
43. Even before this Court found that the Debtor’s leasehold rights had terminated, this Court found that the Debtor was without ability to effectively reorganize. This fact is even more obvious where the Debtor has lost all rights to its most valuable asset.
44. In that the leasehold rights are no longer assets of the estate and the Debtor is without ability to reorganize, the leasehold rights cannot be considered necessary for an effective reorganization.
45. Debtor has no rights in the leasehold property. As agreed to by the Debtor and ordered by this Court as a part of the “Stipulation”, the Debtor must forthwith vacate the premises at Pearlridge and turn over possession thereof to Pearlridge.
46. In addition to the attorneys’ fees heretofore mentioned, which are as a result of prior proceedings, Pearlridge is entitled to recover its costs and attorneys fees incurred in the prosecution of this matter.
47. These Findings of Fact, insofar as they are conclusions of law, are incorporated by reference in the conclusions of law hereinafter stated.
CONCLUSIONS OF LAW
48. Any and all interests of the Debtor in the property leased by the Debtor from Pearlridge at Pearlridge Máll were terminated on August 31,1979. On September 1, 1979, and thereafter, Debtor was a holdover tenant at Pearlridge Mall, responsible for the payment of reasonable rent to Pearl-ridge for the use and occupancy of the premises.
49. Pearlridge did properly make demand for and is entitled to immediate vacation of the premises by the Debtor and the immediate return of said premises to Pearl-ridge.
50. Pearlridge is entitled to be and should be relieved from the automatic stay provided under § 362 of the Bankruptcy Code and from any other injunctive orders, automatic or otherwise, which might restrain Pearlridge from the pursuit of relief against the Debtor in any court of competent jurisdiction, or as allowed under the Law.
51. The amount of One Hundred Thirty-Four Thousand Three Hundred Ninety-Five Dollars and Twenty-One Cents ($134,-395.21) deposited by Debtor in the Circuit Court plus the additional sum of One Hundred Five Thousand Ninety-Eight Dollars And Forty-Eight Cents ($105,098.48) are due, owing and payable by the Debtor to Pearlridge.
52. In addition, attorneys’ fees are owed by Debtor to Pearlridge for services rendered in the Chapter XII proceeding. The full amount owing shall be the subject of a separate order of this Court.
*76253. Pearlridge is also entitled to its costs and reasonable attorneys’ fees incurred in the prosecution of this matter.
54. These Conclusions of Law, insofar as they are findings of fact, are incorporated by reference into the findings of fact here-inbefore stated. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488926/ | HELEN S. BALICK, Bankruptcy Judge.
This is the court’s opinion and order on a motion for judgment on the pleadings in an action brought by Associates Financial Services (“Associates”) to gain possession of a television set in the possession of William Allen Greenly and Linda Joan Greenly (“debtors”). The debtors’ interest in that property was claimed as exempt under 11 U.S.C. § 522(d)(3), (5), but no valuation was placed on the set. In their answer, debtors asserted that Associates’ lien should be avoided pursuant to § 522(f)(2)(A) and counterclaimed for $365.19. This figure is the difference between the deferred payment price of $571.63 in the agreement between William Allen Greenly and Associates dated October 11,1977 and the balance of $206.44 which Associates claims is due it. Debtors contend that this is the amount of the debtors’ exempt interest and that because of § 522(c) no part of the property may be used to satisfy any pre-petition debt during or after the ease without paying that amount to the debtors.
During briefing, the debtors conceded that Associates has a valid purchase money security interest in the television set which cannot be avoided under § 522(f)(2)(A). Section 522(c) prevents the holder of any nondischargeable debt other than alimony or taxes from proceeding against exempt property during and after the case. It does not prohibit the satisfaction of a valid lien from property exempted under § 522(b). Holders of valid liens on exempt property are entitled to retain their rights unimpaired by bankruptcy.
Congress recognizing, however, that certain property subject to a lien may be essential or at least worth more to the debtor than anyone else provided in § 722 that an individual debtor in a liquidation case may redeem tangible personal property intended primarily for personal, family or household use from a lien securing a dischargeable consumer debt, if that property is exempted under § 522, by paying the holder of such lien the amount of the allowed secured claim. In short, the “provision amounts to a right of first refusal for the debtor in consumer goods that might otherwise be repossessed.” Report of the Committee on the Judiciary, Bankruptcy Law Revision, H.R.Rep.No. 595, 95th Cong., 1st Sess. 380-81 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6336.
The pleadings reflect disagreement between the parties as to the amount of Associates’ claim. This question must be resolved before Associates can repossess or the debtors can redeem the property. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488927/ | MEMORANDUM OPINION
WILLIAM A. SCANLAND, Bankruptcy Judge.
Plaintiff filed a complaint objecting to the discharge of a debt due it from the defendant debtor under 11 U.S.C. 523(a)(2)(A). This section reads, “(a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt ... (2) for obtaining money . .. by-(A) false pretenses, a false representation, or actual fraud ...” This matter was submitted to the Court upon a Stipulation of Facts agreed to by both parties, together with various documents attached to it.
The debtor apparently received unemployment benefits from plaintiff totaling $2,295.00 between June 1, 1975, through December 6, 1975. An investigation was started by plaintiff which resulted in a letter being sent by Mrs. Forcier to the Department. See Exhibit I. In that letter she acknowledges that Forciers had received a certified letter stating that they were indebted to plaintiff in the amount of $2,295.00. Plaintiff replied to this letter by a letter dated December 27, 1976, stating that it would accept the amount of $25.00 per month in order to repay the $2,295.00 unemployment insurance overpayment. See Exhibit J of the Stipulation of the parties. There also is attached to the Stipulation of Facts a sworn statement, sworn to on January 8,1976, by Terry J. Forcier, who acknowledged he had been in class commencing in June 1975, and continuously thereafter. The debtors made $25.00 monthly payments to plaintiff totaling $550.00, leaving a balance due of $1,745.00. See Pretrial Order (pleading 3-13). During the period in which debtor, Terry Joseph Forcier, was receiving unemployment benefits, he appeared at a local unemployment insurance office every two weeks and signed a certification card swearing that he was not attending school. Copies of each of the certification cards are attached to the Statement of Facts marked Exhibit D. Copies of the payment checks are attached and marked Exhibit C to the Stipulation of the parties.
A.R.S. § 23-771 (1956) provides for the eligibility for benefits of claimants from the Arizona Department of Economic Security, and reads as follows:
“An unemployed individual shall be eligible to receive benefits with respect to any week only if the department finds that the individual:
1. ...
2. ...
3. Is able to work, and is available for work.
4. ...
5. ...
6. ...
7.”
The word “availability” is defined in the Official Compilation of Administrative Rules and Regulations (State of Arizona). Regulation R6-3-1805, after citing the above quote from A.R.S. § 23-771, reads as follows:
*33“In conformity with this Section, the Department of Economic Security prescribes:
A. ...
B. An individual shall be presumed to be unavailable for work for any week of unemployment if such individual is a student; provided, however, that such presumption may be rebutted upon a showing to the satisfaction of the Department that such individual was, in fact, available for work. For purposes of this Regulation, a student is an individual who is registered for full-time attendance at, and regularly attending an established school, college or university, or similar institutions for academic learning, or who has so attended during the most recent regular term.”
Regulation R6-3-5240 reads as follows:
“A. Department Regulation R6-3-1805 provides in part:”
(Sets forth pertinent portions of Sub-paragraph B of this regulation).
“1. Full-time attendance at an institution for academic learning creates a presumption that a claimant is unavailable for work. A claimant who is attending, or during the most recent regular term has attended, an institution of academic learning on a full-time basis, is considered a “student” and presumed unavailable for work. This presumption may be rebutted if the claimant has not, in order to attend school, left suitable full-time work, refused suitable full-time work, or reduced his hours to part-time work and has established a sufficient pattern of concurrent, full-time work and full-time school attendance during the nine months preceding his new or additional claim to show that school attendance will not in itself interrupt full-time employment.
2. A full-time student can remove the presumption that he is not available for work only by having established a definite pattern of regular, full-time work during regular school terms and vacation periods, showing that school attendance will not in itself interrupt full-time employment.”
The Arizona Department of Economic Security made a determination on January 13, 1976, as follows: “You returned to school as a fulltime student on 6-2-75 and your status precludes you from realistically seeking regular full time employment. The determination of 1-9-76 is hereby set aside. You will be requested to repay any overpayment created by this determination.”
This Court is not bound by this determination. See In re Houtman, 568 F.2d 651 (9th Cir. 1978). Here the Ninth Circuit Court said, “What is required is that the bankruptcy court consider all relevant evidence, including the state court proceedings, that is offered by the parties, or requested by the court, and on the basis of that evidence determine the nondischarge-ability of judgment debts ...”
This Court finds that the debtor, Terry Joseph Forcier, received unemployment benefits for the period June 1, 1975, through December 6, 1975, while he was a regular student at Pima Community College, and that the claimant filed false certifications in which he asserted he was not attending any school during the period he received the unemployment insurance benefits. The fact that the debtor, Terry Joseph Forcier, states in a sworn affidavit that he was available for work and that he would not let his school schedules interfere with accepting full-time employment and would either drop school or change his schedule if he found suitable full-time work (see Exhibit E of the Stipulation of the parties) is not sufficient evidence to rebut the presumption of unavailability for work raised by R6-3-5240. There is no evidence of a sufficient pattern of concurrent full-time work and full-time school attendance for any period of time.
For the foregoing reasons this Court finds that the debt due plaintiff from defendant, Terry Joseph Forcier, of $1,745.00, is nondischargeable. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488928/ | ORDER ON COMPLAINT TO MODIFY STAY
R. J. SIDMAN, Bankruptcy Judge.
The Galbreath Mortgage Company has filed a complaint requesting a modification of the stay of proceedings against the property of the debtors imposed pursuant to § 362 of the Bankruptcy Code. The matter was tried to the Court on its merits and the Court makes the following findings.
On November 2, 1979 Richard A. and Karen S. Douglass, husband and wife, filed a joint petition seeking relief under Chapter 13 of the Bankruptcy Code. The plan proposed by the Douglass’ was confirmed by this Court by order of November 30, 1979. The Douglass’ are owners of residential real estate at 4075 Platte Drive, Groveport, Ohio 43125, and in conjunction with the purchase of that real estate they executed and delivered to Galbreath Mortgage Company a mortgage note dated January 12, 1979 in the principal sum of $46,650.00 and a mortgage deed to secure such note. This note is presently in default as of the March 1,1980 payment. The principal balance now owed on the mortgage is $46,361.44. Accrued interest charges and other expenses as of October 16, 1980, the date of the trial, are $3,673.64, making a total amount owed as of the date of trial $50,035.08. It is the existence of this default that occasions the relief requested by Galbreath in this adversary proceeding.
The record further establishes that subsequent to confirmation the debtors tendered and Galbreath Mortgage Company accepted at least three mortgage payments. However, when a fourth mortgage payment was tendered in April of 1980 Galbreath returned the payment with the explanation that “this amount is not sufficient for application to this account pursuant to our guidelines.” Galbreath has continued to refuse to accept payments from the Douglass’ since April of 1980. At the time of such refusal the Douglass’ were, at most, only one month in default in post-petition payments to the Galbreath Mortgage Company. There appears to have been no pre-petition delinquency on the account.
While there was some evidence relating to the present value of the residence, there is no credible evidence in the record at this time which would permit this Court to find the present fair market value of the subject property. In this respect and to the extent that it is relevant, § 362(g)(1) places the burden of proof on the issue of the debtors’ equity in the property on Galbreath Mortgage Company.
The debtors’ position in this case is simple. As testified by Richard Douglass, there are sufficient funds on hand in the form of escrowed house payments and an additional check for $1,648.95, representing an insurance settlement on hail damage to the home, to fully cure the default existing on the mortgage note.
Based upon the record before this Court, there appears to be no reason why this Court should not permit the debtors, and concomitantly require the mortgage company, to accept a tender of funds which will fully cure any default existing on the mortgage note. There has been no evidence placed in this record which would indicate that Galbreath Mortgage Company is entitled to more, and specifically, no evidence that the mortgage company is not adequately protected by continuing receipt of full and current payments on the mortgage note.
Based upon the foregoing, the Court hereby determines that relief from the automatic stay of proceedings provided for in § 362(d) of the Bankruptcy Code shall be denied. Such denial, however, shall be conditioned upon the tender by the debtors, within ten days of the date of this Order, of the amount of $3,673.64 to cure the present default on the mortgage note, and maintenance of current payments thereafter.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488930/ | FINDINGS OF FACT
SIDNEY M. WEAVER, Bankruptcy Judge.
These matters were tried by the Court on November 4th, 1980. The Court having heard the testimony and examined the evidence presented, having observed the candor and demeanor of the witness, having considered the arguments of counsel and being otherwise fully advised in the premises, does hereby make the following Findings of Fact and Conclusions of Law.
Medina’s Men’s Shop, Inc., Medina’s Department Store, Inc., and Ramon and Ana Isabel Medina, each filed voluntary petitions in bankruptcy and relief was ordered as to each of the debtors on September 10, 1980. An Order of Transfer and Consolidation was entered on September 12, 1980.
*103William D. Seidle was appointed trustee for the estates of Medina’s Men’s Shop, Inc., Medina’s Department Store, Inc. and Ramon and Ana Isabel Medina on September 16, 1980.
On October 30, 1980, the Trustee filed an adversary proceeding to sell property of the estate free and clear of any interest in such property of any secured creditors, with the liens, if any, to attach to the proceeds of the sale.
This Court has jurisdiction of this proceeding pursuant to 28 U.S.C. § 1471.
Certain property of the estate consisting of inventory, including men’s and women’s clothing and accessories, is located at Medina’s Men’s Shop, Inc., 1107 N.W. 22nd Avenue, Miami, Florida. Other property, including fixtures, counters, and clothing racks is located at Storage Warehouse Company, 601 S.W. 8th Street, Miami, Florida.
Medina’s Men’s Shop, Inc. has been burglarized several times within the past few weeks, and although the store is boarded up, the Court finds that further theft and vandalism may occur unless immediate action is taken.
If the property located in the store is not sold as soon as possible, the creditors will be harmed by the recurring theft of the property located at the store. Furthermore, selling the property located at the warehouse at the same time will minimize the expense of the sale, thus benefitting the creditors of the estate.
The Small Business Administration and Southeast First National Bank of Miami, Coral Way Banking Center, N. A. have claimed liens of certain property of the estate, including the above-described inventory and equipment, but neither entity has any objection to selling the property free and clear of liens, with the liens, if any, to attach to the proceeds of the sale.
The Court finds that the Trustee’s proposition to sell the inventory and other property located at Medina’s Men’s Shop, Inc. and at the warehouse by a private sale is commercially reasonable considering the emergency nature of the circumstances.
Pursuant to Section 363(f), the Trustee may sell property free and clear of any interest in such property of an entity other than the estate if such entity consents or such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.
The Court will enter a Judgment in accordance with these findings of fact and conclusions of law. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488931/ | MEMORANDUM DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
Mary E. Begley filed on 29 August 1980 her petition, plan and schedules under Chapter 13.
In pertinent part the Plan proposes 36 monthly payments of $120.00 for distribution by the trustee to 17 creditors. The total secured debt was scheduled at $3,446.96, and the total unsecured at $6,194.53. Secured claims would receive 100% “of claims filed and allowed”, all liens retained; and, unsecured claims would be paid subsequent to payment of the secured claims.
On 26 September 1980 Money, Inc. filed a Complaint objecting to confirmation of the Plan and, in the alternative, seeking possession of the collateral, a 1978 Oldsmobile.
Pursuant to the general orders of the court, the Trustee has required the Debtor to obtain proper insurance coverage, to provide adequate protection.
The value of the vehicle has been established at $3,250.00; and Plaintiff’s proof of claim shows a present principal amount due of $3,055.36. The loan is also secured by Debtor’s furniture, appliances and household goods.
The original date of the loan was January 8,1980 and the first payment in the amount of $89.34 was due on February 8, 1980. $3,000.00 was the amount financed, upon which an add-on finance charge of $1,377.66 was added, plus charges for credit life insurance premiums in the sum of $109.44 and for disability insurance premiums of $172.48. The “annual percentage rate” shown on the agreement was 19.54%. The Plan further proposes to “pay Grace McKinzie 100% of allowed secured claim”, as follows:
$650.00-Trustee to take possession of wedding and engagement ring that creditor is holding as collateral, and return ring to debtor upon payment of claim.”
The Plan proposes to pay this claim as a super priority ahead of all other claims.
There is no evidence that this claim is in fact, a secured claim. The claimant filed an unsecured proof of claim on 25 September 1980, wherein the Debtor’s Plan was rejected.
DECISION
Plaintiff bases its complaint on the scheduled valuation shown for the vehicle, and “objects to no provision in the Plan for interest at the rate of 15% which is the cost to this secured creditor of the loan proceeds outstanding....”
We note that the secured claim is overse-cured, in that the value of the collateral exceeds the balance claimed. We note also that the Proposed Plan accelerates the loan pay off date. Hence we find that the Plan not only affords adequate protection but, also would provide more than the required indubitable equivalence conformably to this courts prior decision in General Motors Acceptance Corporation v. Anderson, (1980, at Dayton), 6 B.R. 601, Case No. 3-80-01249, Adv. No. 3-80-0323, if it had not been made subordinate to the McKinzie claim.
Inasmuch as the Plan does not propose to modify the consensual finance charge, the contractual rate must be paid, which must be reduced to the rate per annum of 11.5% for administrative purposes, upon confirmation of the Plan.
Even though Chapter 13 does not adopt the absolute priority rule, as such, the rights of secured creditors are given a higher status than the unsecured, as reflected in the provisions of 11 U.S.C. § 1325. Hence, an unsecured claim cannot be classified higher than allowed secured claims whenever a secured, as herein, has been impaired.
*110Because the Plaintiff’s claim is made subordinate to a $650.00 unsecured claim, however, there could be no payments made by the Trustee on the claim for at least six months. We find that this feature impairs the secured claim for the benefit of a junior class and conflicts with the provisions of 11 U.S.C. § 1322(b)(4).
Under Section 1322(b)(4) payments to the unsecured creditors can only be elevated “to be made concurrently with payments on any secured claim.” To meet the “indubitable equivalence” test, therefore, payments on a secured claim must be accorded such a fair and equitable standing.
For the purpose of enabling the Debtor to propose an amended Plan, further time should be afforded before requiring her to relinquish possession of the motor vehicle in question since the Plaintiff is adequately protected.
ORDERED, ADJUDGED AND DECREED, that confirmation of the Proposed Plan at issue should be, and is hereby, denied.
ORDERED, that the Debtor is hereby granted leave for two weeks to submit an amended Plan.
ORDERED, ADJUDGED AND DECREED, that possession of the motor vehicle at issue be surrendered by Defendant to Plaintiff at the end of two weeks if an amended Plan has not been previously filed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488932/ | ROBERT A. JOHNSON, Bankruptcy Judge.
The Campos and Oldham cases were consolidated on Motion of defendant and were heard on September 17, 1980. The Billman case was heard on September 22, 1980. Each of the three cases involves a complaint by plaintiff-debtor therein to avoid the fixing of a lien upon household goods pursuant to § 522(f) of the Bankruptcy Reform Act of 1978,11 U.S.C. § 522(f), and so have been combined for disposition. In each case, the lien in question was created prior to November 6, 1978, the enactment date of the Bankruptcy Reform Act of 1978 (hereinafter, the Code).
The United States Attorney was notified of these claims of unconstitutionality, and has indicated that the United States chooses not to intervene. A similar contention was presented in the United States Bankruptcy Court, Colorado and the United States did intervene there, and is apparently pursuing an appeal to the 10th Circuit Court of Appeals.
The facts in each of the cases are undisputed. Debtors Oscar and Diva Campos entered into a promissory note and security agreement with Beneficial Finance Company on October 9, 1978. The security agreement was secured by household goods of the debtors. Debtors Dennis and Maria Old-ham entered into a promissory note and security agreement with Beneficial Finance Company on July 28,1978. Debtor Mildred Billman entered into a promissory note and security agreement with Dial Finance Company on October 27, 1978.
Section 522(f) of the Code provides, in pertinent part:
(f) Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is-
(2) a nonpossessory, nonpurchase-mon-ey security interest in any-
(A) household furnishings, household goods, wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor; ...
Defendants in the three cases argue that the avoidance of their respective liens deprives them of their property without due process and therefore the statute providing for such avoidance violates the fifth amendment and is unconstitutional.
The threshold question of whether Congress intended § 522(f) to be applied retroactively, to liens created before the enactment date of November 6,1978, is answered affirmatively. The Code applies to all bankruptcy petitions filed on and after the Code’s effective date of October 1, 1979, [§ 402(a)], but no date limitations here were sent by the Code for creditors’ claims or security interests. Retroactivity under the Code is assumed since the date of the filing of the petition is the only determinative date and any liens to be discharged would have to be created prior to the debtor’s filing of bankruptcy. Congress had no other intention but that this should be so, in light of the tradition of bankruptcy legislation applying to secured claims and creditors’ interests which antedate the date of its enactment. Hoops v. Freedom Finance and Security Industrial Bank, 3 B.R. 635, 6 B.C.D. 273 (Bkrtcy.D.Colo.1980).
The issue of the constitutionality of the statute under the fifth amendment is gov*126erned by Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 55 S.Ct. 854, 79 L.Ed. 1593; reh. denied, 296 U.S. 661, 56 S.Ct. 82, 80 L.Ed. 471 (1935), which found the Frazier-Lemke Act to be inconsistent with the federal constitution. The Frazier-Lemke Act of June 28, 1934, amended the Bankruptcy Act of 1898 but was held unconstitutional because it violated the fifth amendment. The Frazier-Lemke Act (hereinafter the Act) was emergency, depression-era legislation designed to provide relief for insolvent farmers. Subsection (s) of the Act provided in part that a bankrupt farmer could retain possession of all or any part of his mortgaged property for five years by paying a reasonable rental to the mortgagee, paying the value of the property, appraised either at the end or the beginning of the five-year period at the option of the bankrupt. The Act explicitly provided that its provisions applied to existing debts at the time the Act became effective. In Radford, the bank argued that to apply these provisions to its pre-existing mortgage on the Radford farm would violate the fifth amendment. The Court agreed:
The bankruptcy power, like the other great substantive powers of Congress, is subject to the Fifth Amendment. Under the bankruptcy power Congress may discharge the debtor’s personal obligation, because, unlike the states, it is not prohibited from impairing the obligations of contracts, [citation omitted]. But the effect of the Act here complained of is not the discharge of Radford’s personal obligation. It is the taking of substantive rights in specific property acquired by the bank prior to the Act. In order to determine whether rights of that nature have been taken, we must ascertain what the mortgagee’s rights were before the passage of the Act.
295 U.S. at 589-90, 55 S.Ct. at 863.
In two recent, well-reasoned opinions from the United States Bankruptcy Court, District of Colorado, In re Rodrock v. Security Industrial Bank, 3 B.R. 629, 6 B.C.D. 267 (Bkrtcy.D.Colo.1980), and In re Hoops v. Freedom Finance, 3 B.R. 635, 6 B.C.D. 273 (Bkrtcy.D.Colo.1980), Radford was held to support the due process violation claim of § 522(f). In Hoops, the Court held that the Constitution offers no greater protection to mortgages on realty than to other security interests. 3 B.R. 635, 6 B.C.D. at 276, citing Armstrong v. United States, 364 U.S. 40, 80 S.Ct. 1563, 4 L.Ed.2d 1554 (1960). Commenting on Hoops’ allegation that liens on household goods are of insufficient value, Judge Keller noted:
. .. the Court recoils from the notion that dollar value is the measure of due process. A lien is a substantive property right for purposes of the Fifth Amendment, (citation omitted.) If the government destroys it in other than an emergency situation, it violates due process whether the collateral is worth $5 or $5 million.
3 B.R. 635, 6 B.C.D. at 276. The Rodrock court was equally as firm in its support of Radford:
Radford stands for the proposition that a substantive right in specific property cannot be substantially impaired by legislation enacted after the right has been created without doing violence to the property owner’s right to due process.
3 B.R. 635, 6 B.C.D. at 268.
In the recent case of In re Baker, 5 B.R. 397, 6 B.C.D. 747 (Bkrtcy.W.D.Mo.1980), the court chose not to decide outright the constitutionality of § 522(f). Instead, it relied, in a case of “grave doubt” of the constitutionality of a statute, on the presumption of § 522(f)’s constitutionality. Reluctant as any court is to declare that any statute is unconstitutional, the Baker court’s willingness to leave the resolution of such constitutional issues to appellate courts seems to me to be inappropriate and subject to misinterpretation as an abandonment of its duty.
The directive of Radford is inescapable: the bankruptcy power of Congress is subject to the fifth amendment, and bankruptcy legislation which substantially impairs pre-existing security interests is unconstitutional. In these cases, the proposed application by debtors of § 522(f) would effect an even more substantial impairment than *127that declared unconstitutional in Radford. Section 522(f) does not merely affect secured claims; it authorizes their complete extinction. Such extinction of liens created before defendants were put on notice by the Code’s enactment is impermissible.
Therefore, IT IS HEREBY ORDERED, ADJUDGED AND DECREED that the Complaint of debtors Campos to avoid the lien of Beneficial Finance Company, and the Complaint of debtors Oldham to avoid the lien of Beneficial Finance Company, and the Complaint of Billman to avoid the lien of Dial Finance Company, are each dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488933/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE came on for trial to be heard upon the Plaintiff’s Complaint to recover monies for goods sold and delivered to the Defendant and the Answer and Counterclaim of the Defendant and the Court having heard the testimony of the witnesses, examined the Court file, and the evidence introduced as well as the argument and memoranda of law submitted by counsel, this Court does hereby make the following findings of fact and conclusions of law:
The Trustee, JAMES B. McCRACKEN, has been duly appointed in the above styled bankruptcy and is acting in said capacity. Prior to the Trustee’s appointment as interim trustee on May 28, 1980 Multronics, Inc. had been operating as a debtor in possession under Chapter 11 of the Bankruptcy Code since April 10, 1980.
During the period from April 10, 1980 until May 28, 1980 the debtor in possession sold to Defendant, ROCKWELL INTERNATIONAL (Richardson, Tx) various electronic equipment represented in invoice number 6476 for the sum of $140.73.
The Plaintiff on June 30, 1980 demanded the total sum represented in the foregoing *128invoice in the sum of $140.73 which Defendant refused to pay due to an alleged setoff against the amount due the Defendant in the sum of $14,771.67 for previously shipped defective merchandise.
The goods represented in the above invoice were not defective. Thus the Defendant will not be allowed a setoff because the Defendant has failed to show the mutuality between the amount sought by the Plaintiff represented in those obligations incurred after the filing of the Chapter 11 and the claim for defective merchandise that existed for goods sold prior to the filing of the Chapter 11 proceeding on April 10, 1980. See Gardner v. Chicago Title Co., 261 U.S. 453, 43 S.Ct. 424, 67 L.Ed. 741, 4 Collier, On Bankruptcy page 553-15, 15th Edition.
Therefore, since under the Bankruptcy Code the debtor in possession and the trustee are different entities from the debtor prior to the filing, then the Defendant in order to recover under his counterclaim had to prove that the goods sold by the debtor in possession represented in invoice number 6476 were defective, which the Defendant has failed to do. However, this does not prejudice Defendant from filing its claim in the bankruptcy case and receiving a claim in the estate.
Consequently, this Court concludes that the Plaintiff is entitled to a judgment against the Defendant to the extent of $140.73 and a final judgment should be entered pursuant to Bankruptcy Rule 921(a) in conformity with these findings of fact and conclusions of law. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488934/ | OPINION
WILLIAM A. KING, Jr., Bankruptcy Judge.
Presently before this court is an application to recover a deposit paid to the trustee by James E. Harmon for the purchase of a *144Pennsylvania Liquor Control Board Eating Retail Dispenser License from the Bankrupt. Because we find that neither the contract of sale nor the case law supports the position of the applicant, the application will be denied.1
At a hearing on the trustee’s application to sell the license, Harmon was the highest bidder at $4,400.00,2 and this court ordered that the trustee was authorized to sell the right, title and interest in the license for that amount.3 Harmon then deposited $440.00 with the trustee (10% of the sales amount) toward the purchase of the license.4
Harmon proceeded to make application to the Pennsylvania Liquor Control Board to effect a transfer of the license.5 However, in order for the Board to allow such a transfer, the Board requires the existence of a location to which the license is to attach. Since Harmon had failed to obtain such a location, the Board rejected the application for transfer.6 The trustee was not contacted by Harmon for over one (1) year after the deposit was made.7 The trustee then applied for and was granted an order8 vacating the order to sell the liquor license to Harmon. Harmon now makes claim to the $440.00 deposit and seeks an order directing the trustee to refund that deposit.
The issue presented is whether a buyer, who has defaulted on an agreement of sale may recover the money paid as a deposit to the trustee who was not in default.
In United-Buckingham Freight Lines v. Riss and Company, 241 F.Supp. 861 (D.Col.1965), plaintiff-buyer sought to recover a $200,000.00 deposit for the purchase of certain common carrier operating rights from defendant-seller. The Interstate Commerce Commission entered a final order denying and refusing to approve the original transaction, and the court granted the plaintiff’s motion for summary judgment. In that case, the contract clearly provided that: “This transaction is subject to approval of the Interstate Commerce Commission .... Both parties agree to promptly execute all required applications for the purpose of securing such approval.... ”
The court concluded that: “Clearly, ICC approval of the contract was a condition precedent, and ... both parties promised to use their best efforts to cause the condition of ICC approval to occur.”
In the instant case, plaintiff alleges that if Harmon could not obtain a location to which the license was to attach, then the purchase agreement was to be vacated.9 We are not aware of any evidence presented which would serve to confirm that allegation or which would support the existence of a condition precedent, such as the one spelled out in United-Buckingham, supra.
Since apparently there were no provisions made affecting rights regarding deposit money in the event of default, this court must look to the laws of Pennsylvania to determine whether Harmon is entitled to a refund of his deposit.
Atlantic City Tire & Rubber Corp. v. Southwark Foundry & Machine Co., 137 A. 807, 289 Pa. 569 (1927) involved a suit by a buyer of machinery to recover back installments paid, though he was the one who breached the terms of the contract. The general rule in Pennsylvania, as stated by the court, is that:
The party who has advanced money, ... and then stops short and refuses to proceed to its ultimate conclusion, the other party being ready and willing to *145proceed and fulfill all his stipulations according to the contract, will not be permitted to recover back what has thus been advanced.... Id. 137 A. at 809.
It is the law of Pennsylvania that a party to a contest who is, himself, in default cannot recover against the other who is not in default for payments made upon the contract. In re Oscar Nebel Co., 117 F.2d 326, 328 (3rd Cir. 1941).
The trustee avers that he knows of no action on the part of the applicant to achieve a transfer of the license. Harmon did not present any evidence showing that the sales agreement was subject to a condition precedent, i. e., approval of the transfer by the Pennsylvania Liquor Control Board.
The trustee neither knew nor had reason to know, that the license could not be transferred without a location to attach to. Furthermore, there was no duty on the part of the trustee to insure that the buyer possessed a location, and it was admittedly Harmon’s responsibility to obtain the location.10 Because there was no corresponding duty upon the trustee, there was no default on his part. The trustee remained ready, willing and able to perform. Due to the failure of Harmon to pay the balance for the license, the trustee was forced to seek another purchaser, and also was obliged to expend estate funds in the amount of $570.00 to renew the license (which he would not have had to do if the agreement had been complied with).11
Accordingly, the application of James E. Harmon for the return of the deposit paid to the trustee for the sale of a Pennsylvania Liquor Control Eating Retail Dispenser License is denied.
. This Opinion constitutes Findings of Fact and Conclusions of Law in accordance with Bankruptcy Rule 752.
. Notes of testimony, p. 6 (December 5, 1978).
. Order dated December 5, 1978.
. Notes of testimony, p. 3 (April 29, 1980).
.Id.
. Id., at pp. 3-5.
. See Application of the Trustee to Vacate Order of Court Selling Liquor License-Legal Document Number 38.
. Order dated December 27, 1979.
. Notes of testimony, p. 5 (April 29, 1980).
. Notes of testimony, p. 5 (April 29, 1980).
. See Trustee’s Answer to Application for Return of Deposit (Legal Document No. 42). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488935/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
This cause came on to be heard upon Plaintiff’s Complaint to determine that its debt is nondischargeable under Title 11 U.S.C. § 523(a)(2). The Court having heard the testimony of the witnesses, having examined the evidence presented, having observed the candor and demeanor of the witnesses, having considered the arguments of counsel and being otherwise fully advised in the premises does hereby make the following findings of fact and conclusions of law:
Plaintiff, LEE COUNTY BANK, is a state banking corporation. In November of 1977, the Debtor/Defendant, ANNE Q. BOETTCHER, filled out a personal financial statement to obtain a loan with Plaintiff. Among other things, she represented on her financial statement that as of November 1, 1977 she had collectible accounts due her of $5,000, cash value of life insurance of $60,000, stocks and bonds of $400,-000, furniture, jewelry, art, etc. of $45,000, and livestock of $10,000. She further represented that her liabilities were $47,000 on notes payable to banks and $700 on accounts due others. Finally, she stated that her total income for the year ending 1976 was $35,000 and that there was no judgment or lien unsatisfied against her property nor suit pending against her.
On December 1, 1977, in reliance on the personal financial statement, Plaintiff loaned to Debtor/Defendant $58,000 secured by an assignment of her interest in a Trust Agreement dated December 22, 1938 with Marjorie Smith Lockhart as donor and Central Trust Company of Cincinnati, Ohio, as trustee, under which she is an income beneficiary for her life. The assignment was acknowledged by the Central Trust Company. The Trust Officer administering the .trust advised Plaintiff that payments would be directed to Plaintiff and should average in excess of $700 per month. The purpose of the loan was to pay a $52,000 indebtedness of Debtor/Defendant at Barnett Bank of Winter Park which had been secured by a prior assignment of her interest in the trust. The balance of the loan was for personal expenses.
On December 9, 1977, Plaintiff loaned Debtor/Defendant $2,500 to complete the payment of her obligations to Barnett Bank of Winter Park.
On December 28, 1977, Plaintiff loaned Debtor/Defendant $6,500 based on her representation that the money was to prepay a commission on the sale of horses which was to be completed within six months. She said that the source of repayment of the loan would be from the sale of the horses.
On January 16, 1978, Plaintiff loaned to Debtor/Defendant $6,000 based on her representation that the money was for the purpose of paying medical expenses for her goddaughter. She represented to the Bank that the source of repayment would be from the proceeds from the sale of a yacht which had been sold. She was to receive the proceeds by June 26, 1978.
On December 2, 1977, Plaintiff loaned Debtor/Defendant $8,000 again based on the representation that the money was for medical expenses of her goddaughter. The Debtor/Defendant represented to the Bank that the source of repayment of the loan was the sale of the yacht. The loan was to be repaid on June 26, 1978.
*260On February 15, 1978, Plaintiff lent Debtor/Defendant another $6,500 again based on the representation that the money was for medical expenses for her goddaughter and would be repaid from the proceeds from the sale of the yacht on June 26, 1978.
On March 3, 1978, Plaintiff lent Debt- or/Defendant $8,500 based on the representation that the money would be used to purchase an automobile she was leasing and that the loan would be repaid from the proceeds of the sale of the yacht on June 26, 1978.
On March 3, 1978, Plaintiff lent Debt- or/Defendant $8,000 to pay taxes based on the representation that the money would be repaid from the proceeds of the sale of the yacht on June 26, 1978.
On May 10, 1978, Plaintiff lent Debt- or/Defendant $19,500 to pay a loan for which she was obligated to the Barnett Bank of Winter Park secured by a boat she lived on and which she was to acquire. The loan was to be paid from the proceeds from the sale of the yacht on June 26, 1978.
On June 26, 1978, the Debtor/Defendant advised the Plaintiff that the proceeds from the sale of the boat had been tied up in her son’s estate and that the Bank would be paid when those proceeds were received. At that time each of the foregoing notes, with the exception of the original note for $58,000, were consolidated into one note for $65,600.
During the period from December 1, 1977 through June 26, 1978, Debtor/Defendant worked with Plaintiff’s Trust Department to establish an inter vivos trust to be funded primarily from the proceeds from the sale of her yacht. Although she established a trust account with Plaintiff, the only funding for the account was the initial $1,000 deposit.
Debtor/Defendant defaulted in making payments to Plaintiff on the various loans, and on June 19, 1979 Plaintiff recovered a Summary Final Judgment against Debt- or/Defendant in the amount of $124,957.33.
At trial Plaintiff established and the Court finds that the Debtor/Defendant did not have a goddaughter for whom medical expenses were required, did not purchase an automobile, did not have title to the boat she was living on transferred to her name, she never had an interest in a yacht from which she represented to the Bank she could repay these loans and her son did not die. In fact, Debtor/Defendant acknowledged that the true purpose of these loans was to support her gambling habit.
Plaintiff also established and the Court finds that Debtor/Defendant submitted a materially false written statement to the Bank with the intent to deceive in that she did not have a collectible account due her of $5,000, she did not have cash value in life insurance of $60,000, she did not have stocks and bonds worth $400,000, and she did not have annual income for 1976 of $35,000. The court further finds that she understated her liabilities, and she failed to disclose an unpaid $8,799.47 federal tax lien for unpaid income taxes for the years 1973, 1974, 1976 and 1977.
§ 523(a)(2) of the Bankruptcy Code provides:
A discharge under § 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt—
(2) for obtaining money, property, services, or an extension, renewal, or refinance of credit, by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtors or an insider’s financial condition; or
(B) use of a statement in writing—
(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for obtaining such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive;
The Court finds that the written statement submitted to Plaintiff was materially false, that such statement was made in *261reference to Debtor/Defendant’s financial condition, that Plaintiff relied thereon, and that Debtor/Defendant submitted the materially false written statement with the intent to deceive.
The Court further finds that the loans were obtained by false pretenses or representations amounting to actual fraud in that the representations regarding the purposes of the loans and the source for repayment of the loans were knowingly and fraudulently made and were relied upon by Plaintiff in making the loans.
It is undisputed that the amount owed, including interest, is $125,726.94 as of the date of this Order.
As is required by Bankruptcy Rule 921(a), a separate judgment will be entered in favor the Plaintiff and against Defendant in the amount of $124,726.94 and that claim is declared non-dischargeable under 11 U.S.C. § 523(a)(2). Costs will be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488936/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE CAME ON TO BE heard before the undersigned Judge of this Court for Trial on the Complaint filed by the Plaintiff. The Defendant, WILLIAM D. SEIDLE, the Defendant 18TH AVENUE DEVELOPMENT CORP., and other Defendants filed answers and the Court heard testimony of witnesses, received various documents and exhibits in evidence and heard argument of counsel. The Court being fully advised in the premises, makes the following Findings of Fact and Conclusions of Law.
There was no dispute at the Trial that the Mortgage and Note were in Default for non-payment prior to commencement of these Bankruptcy proceedings. Although the Plaintiff had asked for many different types of relief, it was satisfied at this point in litigation if the Court would rule on the validity of the Mortgage and Note, the priority of its lien over other interests against *363the property and the amount due by the Debtor. The right to sell the property based upon a Judgment in favor of the Plaintiff to satisfy the indebtedness was reserved by agreement for subsequent application in these proceedings.
As indicated, aspects of this litigation are not in dispute. HOME FEDERAL SAVINGS & LOAN ASSOCIATION (HOME) is the owner and holder of a mortgage on property of the Debtor as described therein. This Note and Mortgage was the subject of a modification agreement. The Trustee and the Debtor have stipulated for the purposes of this hearing that the Mortgage Note and the Modification Agreement are valid, that it was properly executed by the Debtor prior to the Bankruptcy Proceedings and that at the time of the commencement of these proceedings, was in Default for non-payment. In addition, they have conceded that it is superior to the interest of the Trustee and the Debtor.
Although there were other Defendants named herein, none appeared and presented evidence to the Court that the Plaintiff’s lien was not superior to their interests. In view of the foregoing stipulations in open Court between the Plaintiff, the Debtor and the Trustee and the lack of contrary evidence, the Court concludes as a matter of law that the Mortgage, the Promissory Note and the Mortgage Note Modification Agreement are valid, that the Mortgage constitutes a valid first lien on the property described therein and that it was in Default prior to the commencement of the Bankruptcy proceedings.
There were further stipulations and agreements at the trial. The parties agreed that there were only the three issues to be resolved by this Court which would thereafter make the computation of the principal and interest due to date a matter of mathematical computation. This would save this Court much judicial labor. The parties agreed that once the Court had made a determination as to the amount of interest due on Default, whether the interest could be capitalized and compounded and whether the Plaintiff was entitled to interest from the date of payment of costs and attorney’s fees, the computation of the principal and interest would be purely mathematical and could be resolved by mutual agreement between the parties.
The Plaintiff presented and the Court admitted into evidence, among other documents, the original Note and Mortgage dated November 6, 1973 and a Note Modification Agreement dated April 3, 1975. The original Note was for the principal sum of One Million Two Hundred Thousand and No/100 ($1,200,000.00) Dollars and provided for Default interest at the rate of 12% per annum. The Note Modification Agreement provided that:
“2. the interest on the principal sum evidenced by the Original Mortgage Note described above shall be at the rate of Ten percent (10.00%) per annum commencing as of this date, notwithstanding the interest rate recited therein except that in the event of a default in the payment thereof, or a default in a payment of the Mortgage Note of even date herewith, then both the Original Mortgage Note and the Mortgage Note of even date herewith shall bear interest at the rate of Ten percent (10.00%) per an-num.”
The parties to an agreement may, at any time subsequent thereto, modify, waive or change their respective rights and obligations under the agreement. Mortgages and Mortgage Notes are no exception to this general rule. Spann v. Baltzell, 1 Fla. 301 (1847); Robinson et al. v. Hyer et al, 35 Fla. 544, 17 So. 745 (1895).
The Note Modification Agreement provided for a reduction in the default interest to 10%. This was clear in the language of the document. Even were it not clear, the only competent evidence before me was the uncontradicted testimony of one of the parties to the agreements, Mr. Leonard Schreiber whose testimony supports that conclusion. Since the Modification Agreement was drawn by the Plaintiff, ambiguities, if any, should be resolved against it. MacIntyre v. Green’s Pool Service, Inc., 347 So.2d 1081 (Fla. 3rd DCA *3641977). Oral testimony may be heard and considered to interpret a document under these circumstances. Hurt v, Leatherby Insurance Company, 380 So.2d 432 (Fla.1980). In light of the foregoing, I must therefore conclude that the parties agreed to modify the provisions of the original Note and Mortgage to provide for 10% on default.
The next question is whether the Plaintiff may capitalize the default interest by adding it to the principal each month and thereafter charge interest on interest. I conclude that it may not do so, but may only charge simple interest on Default. See Morgan v. Mortgage Discount Co., 100 Fla. 124, 129 So. 589 (1930); Deno v. Smith, 103 Fla. 282, 140 So. 335 (1931); Coggan v. Coggan, 183 So.2d 839 (2nd DCA 1966); 47 C.J.S. Interest § 3, p. 15.
The last remaining question for the Court is whether the Plaintiff is entitled to charge interest on costs and attorney’s fees as they are paid. Since the agreements call for the payment of reasonable attorney’s fees, the fixing of those fees, as between the parties to the agreements, is for this Court to decide based on evidence presented to me. Boyette v. Carden, Fla.App., 347 So.2d 759.
Attorney’s fees are flexible in comparison to the fixed costs of abstracting, court filing fees and such similar items of expenditure. They are true third party payments over which neither the Mortgagor nor the Mortgagee has any control. The Plaintiff may therefore recover interest from the date of payment of all expenses and costs as claimed, except for its payment of attorney’s fees. The amount of attorney’s fees awarded to the Plaintiff are subject to the judgment of this Court and will be awarded bases upon application and hearing thereon. That issue is not before me now.
The parties have agreed that once the issues adjudged herein have been determined, that it will be a pure mathematical computation to determine the present principal balance plus accrued interest and costs, except for attorney’s fees which is due to the Plaintiff. If the parties cannot agree on that computation, on application of either party, a hearing will be held to make such determination. Upon submission of an agreed amount calculated in accordance with the findings and conclusions herein and the Judgment entered herewith, a Judgment determining the principal, interest and costs will be entered by this Court. Reasonable attorney’s fees will be added to that Judgment after a hearing thereon. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488937/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE coming on to be heard upon a Complaint to direct the turnover of property and for injunctive relief, filed herein and the Court, having heard the testimony and examined the evidence presented; observed the candor and demeanor of the witnesses; considered the arguments of counsel and being otherwise fully advised in the premises, does hereby make the following findings of fact and conclusions of law:
This Complaint seeks turnover order and injunctive relief concerning certain assets of the Debtor that were transferred within one year of bankruptcy. On February 25th, 1980, the within named Debtor filed voluntary proceedings pursuant to Chapter 7, of the United States Bankruptcy Code. The Plaintiff, Trustee herein, was duly appointed and served in that capacity to date.
On or about June 27th, 1980, the Trustee commenced this Adversary Proceeding. The Defendant answered this case and it was initially tried on September 6th, 1980. At that time both parties rested; however, the Debtor who was called as a witness in this case sought leave to file a defense of the Trustee’s action on behalf of his minor children which was filed on or about November 3rd, 1980. The testimony concerning additional defenses raised by the intervention were heard on December 2nd, 1980 and at that time all parties rested. By prior Order of Court dated August 8th, 1980, the Defendant has been restrained until further Order of Court from transferring in any manner, whatsoever, the property which is the subject matter of this litigation; said restraining order supersedes prior restraining orders, the first of which was entered on April 8th, 1980.
The facts of this case are as follows: On/or about August 3rd, 1979, the Debtor entered into a trust agreement for the benefit of his children, EDWARD J. HARRIS, LISA R. HARRIS and JULIE K. HARRIS. The Defendant, HERBERT KAPLAN, agreed to serve as Trustee (together with his spouse). At that time, the Debtor transferred to the Defendant, KAPLAN, the following described property:
A. A 20.85% interest in Apartments Limited
B. 10% interest in Midwest Properties # 4
C. I.R.E. Promissory Note dated April 1st, 1979 with a face value of $15,000.00.
The Debtor’s schedules reflect that at the time of bankruptcy he owed total debts in excess of $800,000.00. At the time of trial conducted herein, the Debtor admitted that the vast majority of this indebtedness was due and owing for more than one year prior to the filing of his petition. The Debtor further testified that the only property of value that he owned during 1979 is the property that was transferred to his children and that is the subject matter of this lawsuit.
Based upon these factors, the Court concludes that the Debtor committed a fraudulent transfer as defined by § 548(a) of the United States Bankruptcy Code in that the transfer was made within a year of bankruptcy and was either under subsection (1) “made .. . with actual intent to hinder, delay or defraud any entity to which the *458Debtor was or became, on or after the date that such transfer occurred or such obligation was incurred, indebted”; or (2)(A) “received less than a reasonably equivalent value in exchange for such transfer or obligation”; and (B)(i) “was insolvent on the day that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation”.
Nor is the Court dissuaded from this finding by the attempted demonstration of consideration offered by the Debtor pursuant to his intervention. The Debtor attempted to show that the beneficiaries of this transfer, his minor children, had previously loaned $200,000.00 to a corporation know as P. H. HOLDING, CO., a Florida corporation and the notes that the children held were, at the time of the transfer, worthless. No testimony was introduced demonstrating that the Debtor was indebted to his children in any amount whatsoever; however, even if the Debtor was so indebted, this transfer should be vacated as a voidable preference pursuant to § 547 of the United States Bankruptcy Code because it was made to an insider, children of the Debtor, as defined by § 101(25) USBC and the Debtor’s own knowledge of his financial condition can be imputed to his minor children.
Accordingly, the Court concludes that the Plaintiff/Trustee has sustained its burden of proof required by §§ 547 and 548 of the United States Bankruptcy Code and the property, which is the subject matter of this litigation, should be turned over to said Trustee. The Court will enter a Final Judgment in accordance with these findings and facts. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488938/ | *459MEMORANDUM OPINION CONCERNING TRUSTEE’S OBJECTIONS TO DEBTORS’ CLAIMS OF EXEMPTION
JAMES W. MEYERS, Bankruptcy Judge.
I
This matter involves certain objections to the debtors’ claims of exemption, filed by the trustee herein, Mr. Philip J. Giacinti, Jr. The debtors first sought relief under the United States Bankruptcy Code (“Code”) on October 31, 1979. On August 25, 1980, the trustee filed his objections to the debtors’ claims of exemption. The matter then came on for hearing before this Court, at which time the Court took the matter under submission.
Having considered the arguments presented by both parties, the Court has decided to overrule the objections as presented by the trustee. This opinion is filed to explain that decision.
II
FACTS
The debtors initially chose to file their petition under Chapter 13 of , the Code. Their petition and plan, however, did not meet with the approval of the standing Chapter 13 trustee, and a series of objections, a motion to dismiss, and amended plans ensued. In their third amended Chapter 13 plan, the debtors claimed as exempt their equity interest in certain real property in which they reside, pursuant to Section 522(d)(1) of the Code. 11 U.S.C. § 522(d)(1).
After having struggled for several months under Chapter 13, the debtors decided on June 24, 1980, to voluntarily convert their case to a Chapter 7 proceeding. A short time later, the debtors amended their original exemptions so as to claim the residence exempt under Section 690.31 of the California Code of Civil Procedure.1 The meeting of creditors was held on August 6, 1980. On August 25, 1980, the trustee filed his objections to the debtors’ amended claims of exemption, which deal solely with the debtors’ attempt to exempt their residence. The debtors have not challenged the timeliness of the trustee’s objections. See Bankruptcy Local Rule 32(c).
Ill
DISCUSSION
A. The Need For a Declaration of Homestead Under Cal.Civ.Proc.Code § 690.31
The trustee cites as one basis of objection the lack of any declaration of homestead filed by the debtors. The debtors, though, disagree and correctly point out that no such declaration is required under Section 690.31.2
It is clear that Section 690.31 of the California Code of Civil Procedure was enacted to provide the benefits of homestead protection to those individuals who fail to file a declaration of homestead. See Adams, Homestead Legislation in California, 9 Pac. L.J. 723, 725, 737 (1978). This concern is made clear by the wording of the section itself, which compares the exemption under Section 690.31 with the alternative protection afforded by a declared homestead perfected under the California Civil Code. See Cal.Civ.Proc.Code § 690.31(a)(1) (West). See also Cal.Civ.Code §§ 1237 et seq. (West) (declared homesteads). The California courts have also concluded that no declaration of homestead is required by this section. See e. g., San Diego White Truck Co. v. Swift, 96 Cal.App.3d 88, 91, 157 Cal.Rptr. 745 (1979). Accordingly, this objection is without merit.
*460B. The Application of 11 U.S.C, § 544
Here, the trustee argues that he has a judgment lien on the property in question pursuant to Section 544(a)(1) of the Code. See 11 U.S.C. § 544(a)(1). Generally, this section affords the trustee, as against transfers by, or obligations of the debtor, the avoidance powers of a hypothetical judgment lien creditor who obtained such a lien simultaneously with the filing of the debtors’ petition. It is further argued that under Section 674(c) of the California Code of Civil Procedure, this hypothetical judgment lien attaches to the property despite the protection of the exemption allowed under Section 690.31. See Cal.Civ.Proc.Code § 674(c) (West).3
Such a lien, contends the trustee, can be enforced like any other encumbrance when the property subject to Section 690.31 is sold, or otherwise left unoccupied by the debtors. See In re Campbell, 5 B.C.D. 6 (S.Cal.1978) (Katz, J.). This conclusion allegedly raises the additional issue of how long the trustee may wait to enforce his supposed lien. In conjunction with these issues, the trustee has requested this Court to comment on the applicability under the Code, of the reasoning set forth in In re Campbell, supra, a case decided under the former Bankruptcy Act.
The debtors respond to these arguments by pointing out that the trustee merely has the status of a judgment lien creditor and not an actual judgment lien. Second, they claim that in any event, the trustee cannot execute against their exempt equity and that the trustee cannot merely “sit on the property” until the debtors vacate. And finally, the debtors contend that under Section 675b of the California Code of Civil Procedure the debtors could simply “cancel” whatever judgment lien the trustee may have. See Cal.Civ.Proc.Code § 675b (West).4
The Court, however, declines the trustee’s invitation to comment on Campbell and its application to cases brought under the Code. Nor does the Court express any opinion on the merits of the parties’ respective arguments concerning Section 544(a)(1) of the Code. The Court bases this conclusion on the premise that the trustee has not actually objected to the debtors’ Section 690.31 claim, but has instead requested a declaratory judgment of his rights under Section 544 and relevant state law. See generally E. Edelmann & Co. v. Triple-A Specialty Co., 88 F.2d 852, 854 (7th Cir.1934) (nature of declaratory relief); Freeman v. Marine Midland Bank-New York, 419 F.Supp. 440, 449-50 (E.N.Y.1976) (nature of declaratory relief); 6A Moore’s Federal Practice ¶ 57.05 at 57-26 (2d ed.) (“Moore’s”).
Undoubtedly, the Court has the power to render declaratory relief under the Code. Section 249 of the Bankruptcy Reform Act of 1978, see Pub.L.No.95-598, 92 Stat. 2549, amends the federal Declaratory Judgment Act to read:
In a case of actual controversy within its jurisdiction, except with respect to Federal taxes other than actions brought under section 7428 of the Internal Revenue Code of 1954 or a proceeding under section 505 or 1146 of title 11, any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.
28 U.S.C. § 2201. By implication then, this Court is authorized to render declaratory *461relief, except in those instances expressly prohibited under Section 2201, which are inapplicable here. See 1 Collier on Bankruptcy ¶ 3.01[8] at 3-125 (15th ed.) (“Collier”). See also 28 U.S.C. § 451 (the phrase “court of the United States” as used in Section 2201 defined to include Bankruptcy Courts).5
An objection to the debtors’ claim of exempt property, however, is not the proper procedural vehicle to present such a claim. While such an objection has been treated as a “contested matter” under the current Bankruptcy Rules, see 12 Collier, ¶ 403.5[1] (14th ed.), it has traditionally been viewed solely as a method whereby the trustee fulfills his obligation to determine whether exemptions are lawfully claimed and allowable. See 12 Collier, ¶ 403.4 (14th ed.); Bankruptcy Rule 403(b).
The correct procedural method of presenting a claim for declaratory relief in the Bankruptcy Court has evidently not been established, at least with respect to the Code. See 1 Collier, supra, ¶ 3.01[8]. It appears reasonable to assume, however, that a complaint should be filed to obtain this type of relief. This is the practice in the federal district courts where such claims have been denominated “civil actions” to be initiated by the filing of a complaint. See Fed.R.Civ.P. 3, 57; 28 U.S.C. § 2201 (indicating that a “pleading” should be filed). See also 6A Moore’s, supra, ¶ 57.22[2].6
Being that there is no contrary authority, or other specific direction in this matter, the Court will require that traditional federal procedure be adhered to. This will require the filing of an appropriate complaint for declaratory relief by any party requesting relief in this matter. See Fed.R. Civ.P. 3, 57; 28 U.S.C. § 2201. To require this, though, will not prejudice the trustee’s rights, as there is no present indication that the debtors plan to quit residing on the property covered by the exemption.7 Accordingly, the trustee’s second ground of objection is also overruled.
IV
CONCLUSION
While the Court commends the trustee for his industry in bringing this matter before the Court, neither of the objections which he has raised are well taken, and they must therefore be overruled. Counsel for the debtors will prepare an appropriate order within ten (10) days of the filing of this opinion.
. This section provides in part that “[a] dwelling house in which the debtor ... actually resides shall be exempt from execution, to the same extent and in the same amount ... as the debtor ... would be entitled to select as a homestead pursuant to [Cal.Civ.Code §§ 1237 et seq. (West)] . .. . ” Cal.Civ.Proc.Code § 690.31(a)(1) (West).
. Whether the trustee has abandoned this objection is not altogether clear, although the trustee’s other arguments seem to indicate that the availability or amount of the exemption is not actually in question.
. Section 674(c) provides in part that “a judgment lien ... shall attach to .. . real property notwithstanding the exemption provided by Section 690.31.” Cal.Civ.Proc.Code § 674(c) (West).
. This section provides that if, after one year following a debtor’s discharge, a judgment is entered against the debtor on a debt previously discharged, that judgment can be “canceled and discharged of record.” Cal.Civ.Proc.Code § 675b (West). See also Public Finance Corp. v. Shaw, 239 Cal.App.2d 756, 49 Cal.Rptr. 847 (1966) (purpose of the section).
. Although Section 451 will not, by its own terms, become operative until April 1, 1984, leading commentators have concluded that “the power of the transition court of bankruptcy to render declaratory judgment cannot be doubted.” 1 Collier, supra, '. 3.01[8] at 3-126 (emphasis added).
. The current Bankruptcy Rules of Procedure contain no counterpart to Rule 57, which generally provides that declaratory judgments must be obtained in accordance with the Federal Rules of Civil Procedure. See Fed.R.Civ.P. 57. Perhaps this situation will be clarified when the new Rules of Bankruptcy Procedure for the Code are promulgated. See H.R.Rep. No.95-595, 95th Cong., 1st Sess. 307 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6264 (indicating that certain matters of bankruptcy procedure will be covered by the Federal Rules of Civil Procedure).
.This fact, however, may raise a question as to whether an action for declaratory relief would present a justiciable controversy: See e. g., United Public Workers v. Mitchell, 330 U.S. 75, 89-90, 67 S.Ct. 556, 564, 91 L.Ed. 754 (1947). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492797/ | ORDER OVERRULING OBJECTION TO TRUSTEE’S PLAN OF DISTRIBUTION
MARY D. SCOTT, Bankruptcy Judge.
THIS CAUSE is befox-e the Court upon the “Objection of Gross & Janes, Inc. to Trustee’s Amended Motion to Distribute Proceeds to Secured Creditors” filed on Apx-il 23, 1998, and the “Preeautionax'y Objection by First Bank” filed on April 23, 1998. The *173parties dispute the propriety of the trustee’s “Amended Motion to Confirm the Sale of Real Property and Personal Property Free and Clear of Liens, to Pay Trustee Commission and Expenses and to Distribute Proceeds to Secured Creditors.”
Sale of equipment and real property of the estate was held on November 20, 1997, and the report of sale was filed on December 23, 1997. Although two parties, First Bank of South Arkansas (“First Bank”) and Gross & Janes, Inc., disagreed as to their respective lien priority on numerous items of property, they agreed that the property should be sold free and clear of liens and that the disputes could later be resolved in the context of the trustee’s motion to distribute the proceeds of the sale. At the sale, Gross & Janes bid on certain items of property, including Lot No. 5, a Drum Debarker valued at $7,000.
Following the sale, the parties entered into negotiations and agreed to distribution of the proceeds of the sale. The trustee was favored with copies of the negotiations culminating in a list of the items and a division of the proceeds. The trustee takes this settlement into account in his motion to confirm the sale and to distribute proceeds. Gross & Janes subsequently filed an objection asserting that the trustee’s proposed distribution did not take the settlement into account. Gross & Janes asserts that First Bank is entitled to a cash distribution of $22,325, ownership of the Drum Debarker, and the transfer of the credit bid of $7,000 from Gross & Janes to First Bank. Gross & Janes also asserts that it should receive $14,480, less its allocation of the administrative expenses.
It is well settled that settlement contracts, absent fraud or genuine mutual mistake, will be upheld. Southern Farm Bureau Life Ins. Co. v. Burney, 590 F.Supp. 1016 (E.D.Ark.1984) Due to court preference for settlements, “one who attacks a settlement must bear the burden of showing that the contract he has made is tainted with invalidity____” Boyd v. Larco-Industrial Painting Corp., 356 F.Supp. 917, 922 (W.D.Ark.1973)(quoting Callen v. Pennsylvania R. Co., 332 U.S. 625, 630, 68 S.Ct. 296, 92 L.Ed. 242 (1948); Accord In re North Broadway Funding Corp., 34 B.R. 620 (Bankr.E.D.N.Y.1983); Justine Realty Co. v. American National Can Co., 976 F.2d 385, 391 (8th Cir.1992). An agreement will not be set aside because one party later decides it is disadvantageous. Worthy v. McKesson Corp., 756 F.2d 1370, 1373 (8th Cir.1985).
In the instant case, the stipulated exhibits and facts reveal that the parties agreed to a specific distribution of proceeds with regard to particular items of equipment. Although the parties could have incorporated, or otherwise taken into account, the particular bids and credits made at the sale, they did not do so. Rather, the parties allocated proceeds. It is not for the Court to deny confirmation of the sale or the settlement because one party did not negotiate or require a provision to take into accounts its actions taken prior to the settlement. Accordingly, it is
ORDERED as follows:
1. The “Objection of Gross & Janes, Inc. to Trustee’s Amended Motion to Distribute Proceeds to Secured Creditors” filed on April 23,1998, is Overruled.
2. The “Precautionary Objection by First Bank of South Arkansas to the Trustee’s Amended Motion to Confirm the Sale of Real Property and Personal Property Free and Clear of Any Liens, to Pay Trustee Commission and Expenses and to Distribute Proceeds to Secured Creditors” filed on April 23, 1998, is Moot.
3. The trustee shall prepare an order granting his Amended Motion to Confirm the Sale of Real Property and Personal Property Free and Clear of Liens, to Pay Trustee Commission and Expenses and to Distribute Proceeds to Secured Creditors.” The proposed Order shall be served on the objecting parties, First Bank and Gross & Janes, within ten (10) days of entry of this Order. Five days thereafter, the Order shall be submitted to the Court for signature. If either First Bank or Gross & Janes has further objection to the proposed Order, that party shall notify the Court within the fifteen (15) days of entry of this Order Overruling the Objection.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492798/ | MEMORANDUM OPINION
POLLY S. HIGDON, Chief Judge.
This matter came before the court on the Debtor-in-Possession’s objection to a proof of claim 'filed by the Oregon Department of Transportation. (The “Department”). The Department filed a claim for $82,446.71 of which $75,326.38, which is based on charges imposed under Oregon Revised Statutes (“ORS”) 825.474-476 (formerly codified under ORS 767.815-820), it believes is an excise tax and thus holds priority status under § 507(a)(8)(E).1 The debtor-in-possession objects only to the classification of the $75,326.38 as priority. It contends that the charges are “fees”, not “taxes”, and are not entitled to priority status.
The applicable state law involves payments required by Oregon of motor carriers for highway use.
ORS. 825.474 provides, in relevant part:
(1) in addition to other fees and taxes imposed by law upon earners, there shall be assessed against and collected from every carrier a tax for the use of the highways, to apply to the cost of administration of this chapter and for the maintenance, operation, construction and reconstruction of public highways.
(2) The tax rate which shall apply to each motor vehicle shall be based upon the declared combined weight of the motor vehicle and in accordance with the weight group tax rates as shown in the tables set forth in ORS 825.476 ...
(4) The tax for each motor vehicle when table “A” or “B” is used shall be computed by multiplying the extreme mileage of travel in Oregon by the appropriate weight group tax rate as it appears in the table.
*185In short, the amount of “tax” paid for highway use is determined based on both motor vehicle weight and number of miles traveled.
The Department concedes that the reference in ORS 825.474 to the charges as “taxes” does not conclusively establish that they are taxes for purposes of federal bankruptcy law. “[LJabels imposed by state law are not controlling” when determining what constitutes a “tax”. In re Camilli, 94 F.3d 1330, 1331 (9th Cir.1996). That determination is made under federal law. In re Belozer Farms, Inc., 199 B.R. 720, 723 (9th Cir. BAP 1996).
In In re Lorber Industries of California, Inc., 675 F.2d 1062 (9th Cir.1982), the seminal case2 in this circuit which defines the term “tax” for purposes of determining priority status in bankruptcy, the court held that:
the elements which characterize an exaction of a ‘tax’ ... are as follows:
(a) An involuntary pecuniary burden, regardless of name, laid upon individuals or property;
(b) Imposed by, or under authority of the legislature;
(c) For public purposes, including the purpose of defraying expenses of government or undertakings authorized by it;
(d) Under the police or taxing powers of the state. Id. at 1066.
Although having raised secondary arguments, the parties’ primary disagreement is whether the charges imposed by the statute are “voluntary” or “involuntary.” The Lorber court discussed this element at length. Under its facts the Los Angeles County Sanitation District (the “District”) argued that sewer use fees it had assessed prepetition against the debtor were a “tax.” The debtor argued that the charges were not taxes because it wras not legally obligated to use the sewer system and thus could avoid imposition of the charges. The bankruptcy court agreed, holding that the debtor “was legally free not to use the system, and its voluntary use thus constituted an implied contractual debt.” Id. at 1065. The district court reversed on appeal, holding that the debtor’s “use of the system was involuntary because no practical alternatives were available” and “the District [was authorized] to assess anyone who uses the District’s services.” Id. at 1065. The Ninth Circuit resolved this difference by stating:
In determining if [the debtor’s] use of the system was voluntary, and if it therefore consented to imposition of the fees, we are not free to consider the practical and economic factors which constrained [the debt- or] to make the choices it did. The focus is not upon [the debtor’s] motivation, but on the inherent characteristics of the charges ... The Ordinance allows the District to assess surcharges only when District services are used by industrial customers and only in an amount proportionate to their use. The imposition of these charges thus was triggered by [the debtor’s] decision to discharge into the system large amounts of industrial waste-water. Because the assessment resulted from [the debtor’s] acts, it falls within the non-tax fee classification ... Id. at 1066, 1067.
This circumstance is to be contrasted with that in In re Camilli in which the court held that a charge imposed by statute to reimburse the Industrial Commission of Arizona for workers’ compensation benefits the Commission had to pay to one of the debtor’s employees who was injured on the job was an “involuntary” payment. In Lorber, the obligation was created by the debtor’s voluntary act of using the sewer system. In Camilli the debtor’s obligation to reimburse the Commission was “the product of legislative fiat.” Id. at 1333. “[A]t the time it arose ... it was wholly beyond the control of the debtor.” Id.
The Oregon motor carrier highway use charges covered by ORS 825.474-476 are comparable to the sewer charges in Lorber. They are only imposed on a carrier to the extent that it chooses to use the highway. It may choose not to use the highway and avoid the tax. Admittedly, it would be highly im*186practical, if not impossible, for a motor carrier to avoid using the highway and to stay in business. But the Lorber court unambiguously rejected the district court’s reasoning, which reflected that logic, that “Lorber’s use of the system was involuntary because no practical alternatives were available.” Lor-ber at 1065.
The Department argues that these charges should be deemed involuntary when considered as part of the total Oregon motor carrier and fuels tax statutory scheme. First, Oregon imposes a “fee” to obtain a certificate of authority to conduct carrier business in the state. It imposes another “fee” for an identification plate to be attached to each self-propelled or motor-driven vehicle operated under the permit. In addition, every motor carrier must pay the charges here at issue; Finally, all persons operating motor vehicles in Oregon “compensate this state partially for the use of its highways” by paying a tax of 24 cents a gallon on the use of vehicle fuels. ORS § 319.530. This tax is automatically included in the price of the fuel at the gas pump. Motor carriers’ charges based on weight and mileage are specifically exempted from the 24 cents per gallon tax. ORS § 825.484(2). They either pay less at the gas pump or if they pay the 24 cents per gallon charge they may apply for a credit for the payment against the weight and mileage charges. The Department’s argument is that through this statutory scheme all people who use self-propelled vehicles on Oregon highways have no choice but to pay to construct and maintain them. Each person carries the same burden and receives the same benefit. All the payments were imposed by the state through its “police and taxing powers”, and are unquestionably for a public purpose. Ergo, they are “involuntary”.
Interestingly, again the Lorber facts and findings confound that position. There the cost of constructing, operating and maintaining sewer lines and treatment facilities for all the citizens of Los Angeles County was met through a variety of ways, including collection from all users of ad valorem property taxes based on the assessed valuation of the user’s property. This revenue system also included, as to nonresidential users only, an assessment' which took into account the user’s “contribution to flow, chemical oxygen demand and suspended solids.” Id. at 1064. The nonresidential user was then given a credit against its ad valorem taxes. It is that assessment which was at issue.
The Lorber court recognized the dual nature of this revenue system. It stated:
[t]he parties agree that the revenue collected on an ad valorem basis constitutes taxation. The surcharge for excess industrial use is assessed under the same state statutory authority as the ad valorem taxes ... These similarities between the charges and taxes assessed by the District ... clearly indicate that the classification of these charges is a close question. On balance, however, we conclude that because of the characteristics of the charges, they are better classified as non-tax fees than as taxes. Id. at 1066-1067.
Under the Lorber test the third element which is required for a charge to be denominated a “tax” is that it must be for “public purposes”. The Department appears also to argue that the Ninth Circuit, since Lorber, has changed its definition of “public purpose” and that this change compels treatment of the highway use charges as a tax.
As in Lorber, in Camilli the primary issue was whether the charges were “voluntary” or “involuntary”. However, the Camilli court also discussed two Sixth Circuit cases, In re Suburban Motor Freight, Inc., 998 F.2d 338 (6th Cir.1993) (Suburban I), and In re Suburban Motor Freight, Inc., 36 F.3d 484 (6th Cir.1994) (Suburban II). It summarized the Sixth Circuit view of the Lorber “public purpose” element, standing alone, as “reaching] too broadly” and stated that that circuit “refined Lorber’s ‘public purpose’ criterion to require (1) that the pecuniary obligation be universally applicable to similarly situated entities; and (2) that according priority treatment to a government claim not disadvantage private creditors with like claims.” Camilli at 1334 citing Suburban I, 998 F.2d at 342.
The Camilli court did not, as the Department suggests, specifically adopt the additional Suburban I “public purpose” requirements, thus changing the Lorber “public *187purpose” element. On the contrary, it said: “Because the obligation in this ease meets the four additional requirements set forth by the Sixth Circuit in Suburban I as well as the criteria of Lorber, there is no need to decide whether the Suburban I requirements must be met in all cases.” Id.
Even if the Camilli court could be said to have adopted the Suburban requirements for the “public purpose” element of the Lorber test and assuming that the Department is correct in its assertion that under our facts the pecuniary obligation of the use charges are “universally applicable to similarly situated entities” and that there are no private creditors with like claims which would be disadvantaged if the state were granted priority status, such facts do not lead inexorably to the conclusion that the highway use charges herein are “taxes”. It simply means that the Department would have met one element, the “public purpose” element, of the Lorber test. It would still not have met the “voluntary” element of the test. Without fulfilling all four elements of the Lorber test the charges cannot be “taxes”.
The Department’s highway use charges are not “taxes”. Consequently the charges are not entitled to treatment under § 507(a)(8)(E) as a priority debt. On that basis the court sustains the debtor in possession’s objection to the Department’s proof of claim. The Department will be allowed a general unsecured claim in the amount of $82,446.71. This opinion constitutes the court’s findings of fact and conclusions of law; therefore, they will not be separately stated.
. Unless otherwise indicated, all section references are to the Bankruptcy Code, 11 U.S.C. § 101 et seq.
. This case was decided under § 64(a)(4) of the Bankruptcy Act, 11 U.S.C. § 104(a)(4) but the law has remained applicable under the Bankruptcy Code. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492799/ | MEMORANDUM OPINION
JOHN H. SQUIRES, Bankruptcy Judge.
This matter comes before the Court on the motion of Edwin Stacy (the “Debtor”) and his spouse, Marie Stacy, to dismiss the amended complaint filed by David R. Brown, Trustee of the Debtor’s Chapter 7 estate (the “Trustee”) pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth herein, the Court denies the motion to dismiss. The Debtor and his spouse shall file an answer and any affirmative defenses within thirty days hereof. Concurrently entered herewith is a Preliminary Pretrial Order setting this adversary proceeding for pretrial conference on February 5, 1999 at 9:00 a.m.
I. JURISDICTION AND PROCEDURE
The Court has jurisdiction to entertain this matter pursuant to 28 U.S.C. § 1334 and General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. It is a core proceeding under 28 U.S.C. § 157(b)(2)(H) and (O).
II.FACTS AND BACKGROUND
Many of the facts in this matter are undisputed. On May 2, 1993, Days Inns of America, Inc. (“Days Inn”) filed a lawsuit in the Circuit Court of DuPage County, Illinois against, inter alia, the Debtor. While that action was pending, On November 21, 1994, the Debtor transferred his and his wife’s marital residence in Hinsdale, Illinois (the “Hinsdale Property”) then titled in an Illinois land trust, in which they owned the beneficial interest, to themselves in an Illinois tenancy by the entirety. On September 16, 1996, Days Inn received a judgment against the Debtor in the amount of $328,586.37 and was later awarded attorney’s fees in the sum of $109,520.79.
The Debtor filed a Chapter 13 petition on September 9, 1996, which was subsequently converted to Chapter 7. The Debtor claimed the Hinsdale Property exempt on his Schedule C pursuant to 11 U.S.C. § 522 and the Illinois tenancy by the entirety statute 735 ILCS 5/12-112 (“ § 12-112”).
*274Thereafter, on July 30, 1997, the Trustee commenced the instant adversary proceeding against the Debtor and his spouse. The Trustee alleged in Count I of the complaint that the transfer of the Hinsdale Property by the Debtor to himself and his spouse as tenants by the entireties was a fraudulent transfer in violation of the Illinois Fraudulent Transfer Act, 740 ILCS 160/1 et seq. In Count II of that complaint, the Trustee alleged that the Debtor claimed his entire interest in the Hinsdale Property as exempt property in his Schedule C attached to the Chapter 7 bankruptcy petition. The Trustee alleged that to the extent that the Debtor’s transfer of ownership in the Hinsdale Property into a tenancy by the entirety was avoided under Count I, then his claim of exemption must fail.
On August 12, 1997, the Debtor and his spouse filed their first motion to dismiss the original complaint. They argued that the Illinois Fraudulent Transfer Act was inapplicable to transfers of property to tenancy by the entirety and that any claim that the transfer was avoidable must be analyzed under the standards prescribed in § 12-112. On January 16, 1998, the Court denied the motion to dismiss based in part on the Court’s decision in Voiland v. Gillissie (In re Gillissie), 215 B.R. 370 (Bankr.N.D.Ill.1997). The Court gave the Debtor and his spouse leave to file an answer to the complaint by a date certain. On January 23,1998, they filed a notice of appeal and moved for an interlocutory appeal based on the Court’s denial of that motion to dismiss.
After granting the motion for an interlocutory appeal, on July 30, 1998, Judge Robert W. Gettleman of the United States District Court for the Northern District of Illinois, reversed this Court’s denial of the motion to dismiss the original complaint and remanded the matter for further proceedings. See Brown v. Stacy (In re Stacy), 223 B.R. 132 (N.D.Ill.1998). Specifically, Judge Gettleman determined that the Court erred when it denied the motion to dismiss. He held that only amended § 12-112 should have applied to the matter and the Illinois Fraudulent Transfer Act was inapplicable. Id. at 136. He opined that “to avoid a transfer under § 12-112, the creditor must prove, (1) that the debtor was unable to pay existing debts as they became due, and (2) that the debtor transferred the property to a tenancy by the entirety for the sole, exclusive purpose of avoiding those debts.” Id.
The Trustee filed an amended complaint on September 21, 1998. Therein, the Trustee asserts under Count I that the transfer of the Hinsdale Property from the land trustee to the Debtor and his spouse as tenants by the entireties was fraudulent in violation of the Illinois Fraudulent Transfer Act and § 12-112. Most significantly for purposes of the motion at bar, the amended complaint in paragraph 10 alleges that the Debtor, with the sole intent to avoid the payment of the debt owed to Days Inn, made the transfer into the entireties and that the debt was beyond his ability to pay it. Thus, the Trustee asks the Court to avoid and set aside the transfer of the Debtor’s interest in the Hins-dale Property pursuant to 740 ILCS 160/8, 735 ILCS 5/12-112 and 11 U.S.C. § 544(b). Under Count II of the amended complaint, the Trustee alleges that the Debtor claimed his entire interest in the Hinsdale Property exempt on his Schedule C. The Trustee argues that to the extent that the transfer of ownership in the Hinsdale Property into a tenancy by the entireties is avoided under Count I, then his claim of exemption must also fail.
The Debtor and his spouse filed the instant motion to dismiss on October 26,1998. They allege that the amended complaint should be dismissed with prejudice for two reasons: (1) it seeks relief under the Illinois Fraudulent Transfer Act, which Judge Gettleman held inapplicable; and (2) it does not allege that Days Inn held a judgment against the Debt- or when he and his spouse transferred the Hinsdale Property into tenancy by the entirety, which they contend is a requirement under § 12-112 to avoid the transfer. They conclude that for purposes of applying § 12-112, the Debtor had no “existing debt” at the time of the transfer. It is undisputed that Days Inn did not have a judgment against the Debtor at the time of the transfer of the Hinsdale Property into tenancy by the entirety.
*275III. APPLICABLE STANDARDS
In order for the Debtor and his spouse to prevail on their motion to dismiss the amended complaint under Federal Rule of Civil Procedure 12(b)(6) and its bankruptcy analogue Federal Rule of Bankruptcy Procedure 7012, it must clearly appear from the pleadings that the Trustee can prove no set of facts in support of his claims which would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Colfax Corp. v. Illinois State Toll Highway Auth., 79 F.3d 631, 632 (7th Cir.1996) (citation omitted); Meriwether v. Faulkner, 821 F.2d 408, 411 (7th Cir.), cert. denied, 484 U.S. 935, 108 S.Ct. 311, 98 L.Ed.2d 269 (1987). The Seventh Circuit has emphasized that “[djespite their liberality on pleading matters ... the federal rules still require that a complaint allege facts that, if proven, would provide an adequate basis for each claim.” Gray v. Dane County, 854 F.2d 179, 182 (7th Cir.1988) (citations omitted). It is well established that alleging mere legal conclusions, without a factual predicate, is inadequate to state a claim for relief. Briscoe v. LaHue, 663 F.2d 713, 723 (7th Cir.1981), aff'd, 460 U.S. 325, 103 S.Ct. 1108, 75 L.Ed.2d 96 (1983). Moreover, the Court must take as true all well pleaded material facts in the complaint, and must view these facts and all reasonable inferences which may be drawn from them in a light most favorable to the Trustee. See Northern Trust Co. v. Peters, 69 F.3d 123, 129 (7th Cir.1995); Infinity Broadcasting Corp. of Illinois v. Prudential Ins. Co. of America, 869 F.2d 1073, 1075 (7th Cir.1989); Corcoran v. Chicago Park Dist., 875 F.2d 609, 611 (7th Cir.1989); Marmon Group, Inc. v. Rexnord, Inc., 822 F.2d 31, 34 (7th Cir.1987). The issue is not whether the Trustee will ultimately prevail, but whether he has pleaded a cause of action sufficient to entitle him to offer evidence in support of his claims. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is to test the sufficiency of the complaint, not to decide the merits of the case. Demitropoulos v. Bank One Milwaukee, N.A., 915 F.Supp. 1399, 1406 (N.D.Ill.1996) (citing Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir.1990)).
IV. DISCUSSION
First, the Court will address the Trustee’s argument that the Illinois Fraudulent Transfer Act is inapplicable. Judge Get-tleman stated that “[i]n the instant case, [the Debtor and his spouse] argue that because the amended § 12-112 must be applied, the [Illinois Fraudulent Transfer Act] is inapplicable and the motion to dismiss should have been granted. The court agrees.” Stacy, 223 B.R. at 136. Based upon Judge Gettle-man’s decision, which serves as the law of the case, the Court finds that the Trustee’s requested relief in Count I of the amended complaint under the Illinois Fraudulent Transfer Act is improper. The law of the case doctrine requires a lower court judge to comply with the rulings made by higher courts in the same case. See State of Arizona v. State of California, 460 U.S. 605, 618, 103 S.Ct. 1382, 75 L.Ed.2d 318 (1983); Cole Energy Dev. Co. v. Ingersoll-Rand Co., 8 F.3d 607, 609 (7th Cir.1993) (citations omitted). “[Elxplicit rulings on issues that were before the higher court and explicit directives by that court to the lower court concerning proceedings on remand are not dicta.” Id. (citations omitted). Reference in the complaint to the Illinois Fraudulent Transfer Act is surplusage. Judge Gettle-man held that such an avoidance action as alleged by the Trustee must be solely based upon and is subject to the requirements of § 12-112.
Next, and at the real heart of the motion, the Debtor and his spouse argue that the amended complaint should be dismissed because Days Inn did not have an “existing debt” for purposes of § 12-112. Section 12-112 provides in relevant part:
Any real property, or any beneficial interest in a land trust, held in tenancy by the entirety shall not be liable to be sold upon judgment entered on or after October 1, *2761990 against only one of the tenants, except if the property was transferred into tenancy by the entirety with the sole intent to avoid the payment of debts existing at the time of the transfer beyond the transfer- or’s ability to pay those debts as they become due.
735 ILCS 5/12-112 (emphasis supplied). This section insulates property held in tenancy by the entirety from forced sale by a judgment creditor of only one of the tenants with one exception — where the transfer was made with the proscribed sole intent.
Judge Gettleman interpreted this section to require that the Trustee prove: “(1) that the debtor was unable to pay existing debts as they became due, and (2) that the debtor transferred the property to a tenancy by the entirety for the sole, exclusive purpose of avoiding those debts.” 223 B.R. at 136 (emphasis supplied). Count I of the Trustee’s amended complaint does in fact allege that the Debtor was unable to pay existing debts as they became due and that the Debtor transferred the Hinsdale Property to tenancy by the entirety for the sole purpose of avoiding those debts. Thus, the Trustee’s amended complaint facially alleges both parts of Judge Gettleman’s two-part test for avoiding a transfer under § 12-112.
The Court notes that Judge Gettleman’s view that only § 12-112’s text should be used to measure the sufficiency of an action to challenge a transfer into a tenancy by the entirety was essentially adopted by a recent decision of the Illinois Appellate Court. See Harris Bank St. Charles v. Weber, 298 Ill.App.3d 1072, 233 Ill.Dec. 194, 700 N.E.2d 722 (2d Dist.1998). The majority opinion in Weber sua sponte noted that the amendment to § 12-112 was intended to clarify existing law and was an obvious legislative effort to override the result in E.J. McKernan Co. v. Gregory, 268 Ill.App.3d 383, 205 Ill.Dec. 763, 643 N.E.2d 1370 (2d Dist.1994). Moreover, the Weber court opined that the case of In re Marriage of Del Giudice, 287 Ill.App.3d 215, 222 Ill.Dec. 640, 678 N.E.2d 47 (1st Dist.1997) was inconsistent with the amendment to § 12-112 because the statute does not reference the Illinois Fraudulent Transfer Act. Weber, 233. Ill.Dec. 194, 700 N.E.2d at 728-29. The question of a debtor’s intent at the time of the transfer is for the trier of fact. Id., 233 Ill.Dec. 194, 700 N.E.2d at 729. In a specially concurring opinion in Weber, however, Justice Hutchinson would instruct the trial court to consider the “badges of fraud” or factors from § 5(b) of the Illinois Fraudulent Transfer Act (740 ILCS 160/5(b)) to assist in determining the “sole intent” for purposes of applying § 12-112. Id., 233 Ill.Dec. 194, 700 N.E.2d at 732.
The nub or narrow issue is whether Days Inn’s disputed claim at the time of the transfer was an “existing debt.” The Debtor and his spouse contend that an “existing debt” for purposes of § 12-112 is limited to one on which judgment has already been entered at the time of the transfer of the residence into tenancy by the entirety. It is undisputed that the Debtor transferred the Hinsdale Property on November 21, 1994 into tenancy by the entirety. Days Inn obtained a judgment against the Debtor on September 16, 1996. The Trustee argues that the Debtor’s disputed obligation to Days Inn existed before the Hinsdale Property was transferred, and that is sufficient to constitute an “existing debt” under § 12-112.
The Court disagrees that the language “existing debt” as utilized in § 12-112 is limited only to one on which judgment has already been entered in favor of a creditor at the time of the transfer of the property. First, the plain language of the enacted statute does not lend support to this argument. The Illinois General Assembly could easily have used the phrase “existing debt on/for which judgment has been entered” or similar language if such was intended. In Illinois, the primary goal of statutory construction is to ascertain and effectuate the legislature’s intent. See In re Barker, 768 F.2d 191, 194 (7th Cir.1985) (citing In re Marriage of Logston, 103 Ill.2d 266, 277, 82 Ill.Dec. 633, 469 N.E.2d 167, 171 (1984)). “ ‘Our task is to *277apply the text, not to improve upon it. In re Platter, 140 F.3d 676, 681 (7th Cir.1998) (quotation omitted). To find that intent, the Court must start with the language of the statute. Barker, 768 F.2d at 194 (“In construing a statute, a court should first examine the statutory language itself.”). If the statute’s language is unambiguous, the Court cannot resort to extrinsic aids in construing the statutory language and must enforce a constitutionally valid statute as enacted. Id. at 194-95 (citation omitted). A statute is ambiguous if it is susceptible of more than one accepted meaning. Williams v. Peoples First Nat. Bank & Trust Co. (In re Allen), 221 B.R. 232, 235 (Bankr.S.D.Ill.1998) (citation omitted). It is assumed, however, that the words of the statute are used in their ordinary sense, and if the language of the statute is clear, the Court should follow that language rather than isolated excerpts from the legislative history. Id. (citations omitted). In the absence of statutory definitions indicating a different legislative intent, words in a statute are to be given their ordinary and popularly understood meaning. In re Langa, 222 B.R. 843, 845 (Bankr.C.D.Ill.1998) (citing People ex rel. Daley v. Datacom Sys. Corp., 146 Ill.2d 1, 15, 165 Ill.Dec. 655, 585 N.E.2d 51, 57 (1991)). Courts “appropriately may refer to a statute’s legislative history to resolve statutory ambiguity....” Toibb v. Radloff, 501 U.S. 157, 162, 111 S.Ct. 2197, 115 L.Ed.2d 145 (1991). However, “[w]hen we find the terms of a statute unambiguous, judicial inquiry is complete____” Rubin v. United States, 449 U.S. 424, 430, 101 S.Ct. 698, 66 L.Ed.2d 633 (1981) (citation omitted). See also United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989) (“where, as here, the statute’s language is plain, ‘the sole function of the courts is to enforce it according to its terms.’ ”). The Court concludes that the plain meaning of the phrase “existing debt” is not limited to only those debts which have been reduced to judgment in favor of one or more creditors. ’” In
Section 12-112 does not define the term “existing debt.” Significantly, the language of § 12-112 makes no distinction between debts that are being disputed and those that have been reduced to judgment. The plain meaning of “existing debt” seems to this Court to encompass those debts which exist or are in being that have yet to be reduced to judgment. Black’s Law Dictionary defines existing debt as “it is sufficient if there is an absolute debt owing though the period for its payment may not yet have arrived.” Black’s Law Dictionary 574 (6th ed.1979). Webster’s Third New International Dictionary definitions for debt include “a state of owing;” “something (as money, goods, or services) owed by one person to another;” “something owed;” “the common-law action for the recovery of a certain specified sum of money held to be due or of a sum that can be simply and certainly ascertained.” Id. at 583. Webster’s also defines “existing” to include “to have being in any specified condition or place or with respect to any understood limitation” and “ to continue to be” among other definitions. Id. at 796. An “existing debt” within the provision of the Uniform Fraudulent Conveyance Act defining insolvency need not be a debt which is matured, liquidated, absolute or fixed. It is an existing legal liability, whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent. See Continental Bank v. Marcus, 242 Pa.Super. 371, 363 A.2d 1318, 1320 (Pa.Super.1976); Baker v. Geist, 457 Pa. 73, 321 A.2d 634, 636 (Pa.1974).
Though disputed at the time of the transfer, Days Inn’s claim against the Debtor was pending at that time and was for an amount certain. A fair application of the plain meaning of the phrase “existing debt” cuts against the Debtor and his spouse’s argument that Days Inn was required under the statute to have a judgment before § 12-112 could be invoked to attempt to avoid the transfer. Moreover, the legislature easily could have utilized the term “judgment” or “judgment debt” somewhere in the text of § 12-112 if only judgment creditors were intended to be protected by the exception carved out by the 1997 amendment to § 12-112. Instead, the phrase “existing debt” was employed which *278encompasses much more than judgments against debtors as the above authorities demonstrate.
The Debtor and his spouse argue that the legislative history shows that § 12-112 was amended to deal with the transfer of a debt- or’s residence into tenancy by the entirety only in the face of a judgment. Specifically, they cite to the remarks of Senator Cullerton which provided in relevant part:
This bill was actually passed as an amendment last year. It deals with tenancy by the entirety. We had passed tenancy by the entirety back in 1990, which is a way of holding title for married couples. There was a case that occurred out in DuPage County where a person had a judgment entered against him for over three hundred thousand dollars and who was — was married at the time, and after the judgment was entered, he then conveyed his property from — joint tenancy to tenancy by the entirety and, in effect, had the effect of working a fraud upon his creditors. So the purpose pf this bill is designed to correct that and clarify that, when we passed that law, we — we do want to — if someone has their property in tenancy by the entirety, to protect both parties, but that if — if you own your property in tenancy — in joint tenancy and there’s a judgment against you, that you can’t then transfer your property to a tenancy by entirety and avoid paying your creditors.
State of Illinois, 90th General Assembly, Senate Transcript Debate, S. 465, March 17, 1997 at 30-31 (statement of Senator Culler-ton) (emphasis supplied). This may have been the Senator’s view, but limiting the exception only in favor of judgment creditors is not the text of what the General Assembly legislated. The statutory language does not conclusively establish that the Illinois General Assembly intended that “existing debt” be equated with a creditor’s claim which has been reduced to judgment. A fair application of the plain meaning of the statute does not require such a narrow reading.
When the cited legislative gloss is at some variance with the plain meaning of the statutory text, the latter controls, not the former. As Judge Easterbrook stated in In re Sinclair, 870 F.2d 1340 (7th Cir.1989), “[[legislative history may show the meaning of the texts — may show, indeed, that a text ‘plain’ at first reading has a strikingly different meaning — but may not be used to show an ‘intent’ at variance with the meaning of the text.” Id. at 1344. He went on to further, state that “legislative intent is a vital source of meaning even though it does not trump the text [of the statute].” Id.
With this in mind, the Court declines to adopt the Debtor’s view that the phrase “existing debt” as utilized in § 12-112 mandates that a judgment be entered before a creditor, or in this case a bankruptcy trustee, has standing to invoke the potential exception available to the protection afforded debtors who hold homestead property as tenants by the entirety along with their non-debtor spouses. The result will put the Trustee to his proof and the difficult burden to show by a preponderance of the evidence that at the time of the transfer the Debtor was unable to pay his existing debts as they became due and that the Debtor transferred the Hinsdale Property with the sole intent and exclusive purpose of avoiding those debts. This is a substantial burden, but the Trustee should be afforded the opportunity of attempting to prove his case at a trial on the merits.
V. CONCLUSION
For the foregoing reasons, the Court denies the motion to dismiss the amended complaint. The Debtor and his spouse shall file an answer and any affirmative defenses within thirty days hereof. Concurrently entered herewith is a Preliminary Pretrial Order setting this adversary proceeding for pretrial conference on February 5, 1999 at 9:00 a.m.
This Opinion constitutes the Court’s findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. A separate order shall be entered pursuant to Federal Rule of Bankruptcy Procedure 9021. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492800/ | SUPPLEMENTAL OPINION AND ORDER DETERMINING DAMAGES
JO ANN C. STEVENSON, Bankruptcy Judge.
Following entry of a partial decision in this case on September 17,1998, See 225 B.R. 366 (Bankr.W.D.Mich.1998), the court required the parties to return in order to clarify the *433record regarding the estimation of damages as to the unsold excess inventory remaining in the possession of Clark & Gregory (C & G) at the time of the commencement of the trial. This inventory had been ordered by the debtor, John Hanson (Hanson), in the course of his employment as general manager.
As a result, a hearing was scheduled for November 12, 1998. On October 20, 1998, Hanson filed a Motion for Entry of Judgment stating that the court’s September 17, 1998 opinion constituted its verdict on a closed record as to the issues raised by the parties and was therefore the only basis on which a final judgment could be entered. In response, C & G argued that this court, being a court of equity, could in its discretion make additional findings. To the extent necessary, C & G requested that its response be considered a motion to amend findings of fact on the issue of damages. After careful review of the transcript and the exhibits which were properly admitted and received during the course of trial, the court amends its previous ruling to include the following damages for excess inventory.
According to the testimony of Gary Rams-den, current president of C & G, at the end of every year there would be approximately 15% of that year’s new inventory unsold. Therefore, this court concludes that it would be inappropriate to assess as damages all the remaining excess inventory as of the date of trial. Consequently, using the undisputed figures presented by C & G, in its Summary of Damage Claims provided under Fed. R.Evid. 1006, we find the total amount of excess inventory orders, including sales below cost and sweaters remaining in inventory, along with the interest expense on the excess inventory ordered equals $687,131.52. Subtracting 15% of the total figure which would remain unsold in any given year, the total damages including interest for the excess inventory portion of the nondischargeable damage claim equals $584,061.80
The court is aware that there is more inventory left over now than in average years due to Hanson’s excess ordering scheme. Looking once again to Ramsden’s testimony, C & G might receive only 20% of the actual value of the inventory “once they get down to the last truckload going out”. Accordingly, using 20% of the value of the excess inventory as the lowest figure of recoupment and 100% as the highest amount possible, the average figure of recovery of the 15% left over at the end of the previous years would be 60 cents on the dollar. Consequently, the damages attributable to Hanson’s excess ordering of inventory also include 60% of the remaining 15% or $61,841.83.
NOW, THEREFORE, IT IS ORDERED as follows:
1. To the extent they are not mutually exclusive, Plaintiff C & G’s Motion to Amend Its Previous Findings of Facts and Defendant’s Motion for Entry of Judgment be and hereby are GRANTED,
2. The debt of $645,903.63 representing the excess inventory portion of C & G’s claim is hereby determined to be nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A),
3. The debt of $141,713.03 representing the kickback portion of C & G’s claim is hereby determined to be nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A),
4. The debt of $72,500.00 for the embezzlement portion of C & G’s claim is hereby determined to be nondischargeable pursuant to 11 U.S.C. § 523(a)(4),
5. The debt of $8,400.00 minus the cost of three sweaters purchased by Hanson for the conversion portion of C & G’s claim is hereby determined to be nondischargeable pursuant to 11 U.S.C. § 523(a)(6),
6. C & G’s request for attorney’s fees is hereby DENIED,
IT IS FURTHER ORDERED that this Supplemental Opinion and Order shall be served by first-class United States mail, upon Edward Clark of Clark & Gregory, Inc., Robert E.L. Wright, Esq., John R. Hanson, and Charles S. Rominger, Esq. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492801/ | MEMORANDUM OPINION
ARTHUR B. FEDERMAN, Bankruptcy Judge.
Plaintiff Quail Ridge Investments, Inc. (“Quail Ridge”), filed its Petition for Specific Performance and For Damages in the Circuit Court of Clinton County, Missouri on March 25, 1998. Debtor-Defendant Barbara Naughton filed a Notice of Removal to this Court on March 30, 1998. Concurrent with the removal notice, Ms. Naughton filed a Motion to Sell Real Property Free and Clear of the Claims of Quail Ridge Investments, Inc. and Deposit Proceeds of Sale into Escrow Pending Adjudication of Those Claims. A hearing was held on the motion to sell real property on April 2, 1998. At the hearing, counsel for Quail Ridge agreed to the sale of real property and agreed to remove the lis pendens filed against said real property. Quail Ridge also agreed to waive any rights *528to specific performance and to file a claim for administrative expenses in the approximate amount of $46,000 in this Chapter 11 bankruptcy case. Quail Ridge retained, however, its right to pursue Ms. Naughton in her personal capacity. A hearing was held on Quail Ridge’s claim for administrative expenses and, alternatively, its cause of action against Ms. Naughton individually on October 5, 1998. This is a core proceeding under 28 U.S.C. § 157(b)(2)(B) and (1) over which the Court has jurisdiction pursuant to 28 U.S.C. § 1334(b), 157(a) and 157(b)(1). The following constitutes my Findings of Fact and Conclusions of Law in accordance with Rule 52 of the Federal Rules of Civil Procedure as made applicable to this proceeding by Rule 7052 of the Federal Rules of Bankruptcy Procedure. For the reasons set forth below, I find that Quail Ridge does not have an administrative expense claim against the bankruptcy estate. I also find that Quail Ridge is entitled to a judgment against Ms. Naughton in the amount of $15,000.
FACTUAL BACKGROUND
Barbara Naughton inherited a farm that she subsequently elected to subdivide and develop as a residential community. Phase I of that project was completed prior to the filing of the bankruptcy petition on February 14, 1996. Her Chapter 11 Plan of Reorganization (the Plan) was confirmed on November 22, 1996.1 The Plan provided that Ms. Naughton would sell or refinance Phase III of the development. The Order confirming the Plan provides that Ms. Naughton is required to “obtain approval of the Bankruptcy Court for any post-confirmation borrowing.”2
Benjamin Culpepper, the owner of Quail Ridge, makes two separate administrative expense claims against the estate. Both claims are for funds he allegedly loaned to Ms. Naughton post-petition and post-confirmation. The first claim is for $15,000. After the Plan was confirmed, Ms. Naughton advertised in the Kansas City Star for investors in Phase III of the project. Mr. Culpepper responded to the advertisement. Mr. Cul-pepper testified that he has been in the business of real estate investing for four years. He first met with Ms. Naughton in May of 1997. At that time, she told him that she was in bankruptcy and that she had no money. She also told him that the owners of homes in Phase I were threatening legal action against her if she did not provide adequate water hook-ups to the homes already built. Ms. Naughton believed that if the homeowners took legal action, she would be prevented from developing Phase III. Mr. Culpepper stated he gave Ms. Naughton $15,000 in exchange for an option to buy 20 acres in Phase III for the sum of $65,000. Ms. Naughton believed that to be the fair market value of 20 acres after she obtained the necessary planning and zoning approvals for development. Ms. Naughton used approximately $10,000 of the money advanced by Mr. Culpepper to pay contractors for the Phase I water hook-ups. She used approximately $3,000.00 to make loan payments or to pay for maintenance on vehicles she owned. The balance of the $15,000.00 was used to pay her personal expenses.
Quail Ridge also claims the sum of approximately $30, 000 as an administrative expense. Mr. Culpepper entered into an agreement with Ms. Naughton on August 1, 1997, whereby Quail Ridge agreed to loan up to $30,000 to assist Ms. Naughton in securing financing from Kennedy Funding Corporation (Kennedy).3 The agreement was revised on August 7,1997, to provide for funds not to exceed $33,000 to obtain the same financing from Kennedy.4 Ms. Naughton was seeking a loan of $3.3 million to finance development of Phase III. She was unable to obtain such a loan from a bank or other conventional lender, therefore, she contacted Kennedy. By letter dated August 23, 1997, Kennedy acknowledged that it had received a $10,000 fee for the preparation of the commitment, and that it was willing to make a loan commitment of $3.3 million, provided it received *529a commitment fee of $20,000 in advance.5 However, the loan commitment from Kennedy was contingent on its subsequent appraisal of the quick-sale value of the real estate. Based on that appraisal, Kennedy notified Ms. Naughton on September 5, 1997, that it was prepared to lend her $2,000,000, not $3,300,000.6 Since the $2,000,000.00 was insufficient to satisfy the claims in the bankruptcy case and have any funds remain to develop the land, Ms. Naughton rejected the proposal, and the loan never closed. Because Ms. Naughton did not accept Kennedy’s offer to loan her $2,000,000, Kennedy refused to return the commitment fee Quail Ridge had paid on her behalf.
Quail Ridge now claims that its claims for $15,000 and $30,000 are an administrative expense of the estate pursuant to 11 U.S.C. 503(b)(1)(A). Alternatively, Quail Ridge asks for judgment in the amount of $45,000 against Ms. Naughton personally.
I will discuss first whether the two loans are an administrative expense of this bankruptcy estate.
DISCUSSION
Section 503 of the Bankruptcy Code (the Code) affords administrative expense priority to an expense incurred for the preservation or benefit of the bankruptcy estate:
(b) After notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under section 502(f) of this title, including—
(1)(A) the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case.7
However, “since an administrative expense constitutes a priority claim any recovery must be subject to strict scrutiny by the court.”8 To that end, the Plan required Ms. Naughton to obtain the approval of this Court before incurring any loans on behalf of the estate. She did not do so, therefore, I find that the loans were not incurred on behalf of the estate. Moreover, Quail Ridge must prove by a preponderance of the evidence that any funds it expended on behalf of Ms. Naughton conferred a direct benefit on the estate.9 The Plan had been confirmed at the time of the transactions at issue here.
As to the $15,000 loan by Quail Ridge, the water hook-ups in Phase I had no connection to the bankruptcy estate. Ms. Naughton had sold the acreage that made up Phase I before she filed her bankruptcy petition. The Plan made no provision for the water hookups. While the portion of the $15,000 used to pay the contractor for the water hook-ups and to pay Ms. Naughton’s personal expenses bene-fitted Ms. Naughton, the estate derived no benefit from those funds. As to the portion of the $15,000 used to make payments on automobiles that were an asset of the estate, there was no documentation that the proceeds were used for such. And, Quail Ridge could have secured that part of the loan with permission of this Court. Without some direct evidence that part of the funds were used to preserve assets of the estate, the request for administrative expense priority for the loan of $15,000 to Ms. Naughton must fail. However, there is no dispute that the loan was made to Ms. Naughton post-petition, post-confirmation, and without Order of the Court. As such, Ms. Naughton is personally liable for this sum, and judgment will be entered against her for that amount.
As to the loan of $30,000 to obtain financing for Phase III, this Court did not approve the loan as required by the Plan. And, the estate derived no benefit from the loan.
Additionally, the Revised Letter of Agreement dated August 7, 1997 provides:
If the loan is not approved by Kennedy Funding, corp., [sic] Barbara Naughton assumes no liability for repayment. If Kennedy , Funding, Corp. approves the loan *530and Barbara J. Naughton refuses to close, she will be held personally liable for repayment to Quail Ridge Investments, Inc.10
Mr. Culpepper argues that Kennedy did approve a loan and Ms. Naughton refused to close, therefore, she, and the bankruptcy estate are hable for the loan. I disagree. The only reason Ms. Naughton entered into loan negotiations with Kennedy was because she believed it would loan her a sum sufficient to pay all of the claims in her bankruptcy case, and still provide funds for the development of Phase III. Any sum short of that goal served no purpose whatsoever, and only delayed the implementation of her confirmed Plan. Ms. Naughton made that very clear to Kennedy in the proposal prepared on her behalf by Tina Feldheim of HTF Enterprises Inc.11 Thus, “the loan” referred to in the Revised Letter of Agreement was a loan of $3,300,000. Kennedy did not approve that loan, therefore, Ms. Naughton is not responsible for the repayment of the fee paid to Kennedy on her behalf by Quail Ridge. Thus, Quail Ridge has no claim against Ms. Naughton for the $30,000. If Quail Ridge has no claim against Ms. Naughton, it has no claim against her bankruptcy estate. Quail Ridge’s claim for administrative expense priority, therefore, will be denied as to the loan for $30,000, and judgment will be entered in favor of Barbara Naughton as to Quail Ridge’s request for judgment against Ms. Naughton personally for liability for the $30,-000 loan.
In summary, I find that the two loans executed by Quail Ridge to or on behalf of Barbara Naughton are not entitled to administrative expense priority. I also find that Barbara Naughton has no personal liability as to a payment of $30,000 made on behalf of Ms. Naughton to Kennedy Funding Corp. I further find that Ms. Naughton is personally liable for a post-confirmation loan in the amount of $15,000 made to Ms. Naughton.
Orders in accordance with this Memorandum Opinion will be entered this date.
. Doc. # 147.
. Id. at ¶ 14(f), page 7.
. Pl.Ex. # 29.
. Pl.Ex. # 32.
. Pl.Ex. # 38. I note that the commitment letter provides for a $20,000.00 commitment fee and a $10,000 fee for the preparation of the commitment.
. Pl.Ex. # 46.
. 11 U.S.C. § 503(b)(1)(A).
. In re Food Barn Stores, Inc., 175 B.R. 723, 726 (Bankr.W.D.Mo.1994).
. Id.
. Pl.Ex. # 32.
. Pl.Ex. #24. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492802/ | MEMORANDUM OPINION
FRANK R. ALLEY, III, Bankruptcy Judge.
I.INTRODUCTION
The Debtors purchased a manufactured home, and the real property on which to place it, from Woodland Sales Company. The sale was financed by Defendant Green Tree Financial Servicing Corporation, which acquired a security interest in the land, manufactured home, and appurtenant structures. The Trustee now seeks to avoid the security interest in the manufactured home on the grounds that the security interest was not perfected at the time the petition for relief was filed. The matter was tried largely on stipulated facts set out in the pre-trial order, with additional testimony at a short trial on November 10,1998.
Given the facts of the case and applicable Oregon law, I find for the Trustee.
II.NATURE OF PROCEEDING
This action is brought by the Trustee pursuant to 11 U.S.C. §§ 547, 549 and 550. This Court has jurisdiction pursuant to 28 U.S.C. § 1334. This is a core proceeding. 28 U.S.C. § 157(b)(2)(F).
III.FACTS
On or about July 31, 1996 Debtors Jack and Janice Stoerck contracted to purchase from Woodland Sales Company (“Woodland”) a 1996 Fuqua manufactured home, the lot on which it was situated in Florence, Oregon, and certain improvements to be made on the lot and manufactured home. By the time of the sale the manufactured home had been placed on the lot, the wheels removed, a garage attached, and utilities connected.
The sale price of the property was $97,000. Of this amount $52,000 was allocated by the seller to the manufactured home. (The record is unclear as to whether the Debtors were aware of, much less acquiesced in, that allocation.) Debtors paid $20,000 down, and borrowed the difference from Woodland. Woodland, with Debtors’ consent, assigned the loan to Defendant Green Tree Financial Servicing Corporation (“Green Tree”).
The sale was closed in escrow on October 24, 1996. Debtors executed and tendered to the escrow a deed of trust naming Woodland as beneficiary. The trust deed described, and purported to include, the lot, improvements, and the manufactured home. It was recorded on October 24, 1996 in the appropriate records in Lane County. Recorded as the next document in sequence was an assignment of the beneficial interest under the trust deed by Woodland to Green Tree.
The manufactured structure was originally constructed in June 1995, and then sold by the manufacturer to Woodland. A Manufacturer’s Certificate of Origin (“MCO”) was prepared by the manufacturer at that time, and delivered to Woodland. The MCO was then delivered by Woodland to Ford Consumer Finance Company (“FCFC”) pursuant to a standing inventory financing agreement *550between Woodland and FCFC.1
Prior to the closing of escrow, the escrow agent obtained from FCFC a statement of the amount FCFC required to release its interest in the unit being sold. On the closing date, the escrow agent sent the payoff amount to FCFC by mail, with a cover letter advising that the funds were tendered on the condition that FCFC return the Manufacturer’s Certificate of Origin. As will be shown, obtaining the MCO was a necessary step in ultimately completing the transaction.
FCFC returned the MCO, and a request for reconveyance authorizing the release of its interest in the real property, on or about January 27, 1997. Thereafter the escrow agent secured the necessary signatures on an application to exempt the manufactured structure from registration and titling. The Application and the MCO were delivered by the escrow to the Oregon Department of Transportation, Driver and Motor Vehicles Services Division (DMV) on June 17, 1997. The application for exemption was approved on July 15 and returned to the escrow agent, which caused the application to be recorded in the real property records of Lane County on July 21,1997.
Debtors filed their petition for relief under Chapter 7 of the Bankruptcy Code on November 18,1996.
IV. ANALYSIS
A. Trustee’s avoiding powers.
The parties do not dispute that the Defendant has a valid and perfected security interest in the land and improvements other than the manufactured home. The Trustee’s avoidance action with respect to the manufactured home is based on the understanding that the transfer relating to the manufactured home did not occur until July 21, 1997 when the approved application for DMV exemption was recorded. The Trustee asserts two grounds for avoiding the security interest in the manufactured home. The first is that, since perfection of a security interest constitutes a transfer under bankruptcy law, In re Grand Chevrolet, Inc., 25 F.3d 728, 731 (9th Cir.1994), the perfection in this case occurred after the filing of the bankruptcy petition, and without Court authority. It is therefore voidable under Code § 549. Moreover, the Trustee asserts, the transfer was on account of an antecedent debt, since it operated to perfect a security interest attributable to a debt incurred nearly ten months earlier and is therefore an avoidable preference. 11 U.S.C. § 547.
Defendant asserts that its security interest in all of the property sold was duly perfected at the time the sale closed, by recording the trust deed describing the land and the manufactured home. The matter thus turns on what Oregon law requires for perfection of a security interest in the manufactured home.
B. Defendant’s security interest in manufactured home is unperfected.
Consideration of this issue requires a review of Oregon’s convoluted statutory scheme regarding title to and security interests in manufactured homes. Convoluted is not the same as “ambiguous” and it is clear that perfection of a security interest in a “titled” manufactured structure must be accomplished by notation on the certificate of title. Recording a trust deed describing the structure is insufficient unless the structure has been exempted from the title statutes.
It should be noted to begin with that the statutory term for the structure at issue here is “manufactured structure.” ORS 801.333(1)(a).2
ORS 820.500 provides, in pertinent part:
.... Manufactured structures are subject to the same provisions concerning registration, titling, salvage title, sale by dealers, transfers, transfers of interests and payment of fees as required for any other *551vehicle required to be registered under the Vehicle Code. The following provisions apply to manufactured structures:
(3) The Department shall not issue title or register a new manufactured structure without presentation of information from the manufacturer containing the year of manufacture, the make and the manufacturer’s vehicle identification number. The manufacturer of a manufactured structure shall issue with each manufactured structure to be sold in this State, the information required by this subsection in a form determined by the Department by rule.
ORS 803.097 provides that:
The exclusive means for perfecting a security interest in a vehicle is by application for notation of the security interest on the title in accordance with this section.
An exception is made for vehicles held by dealers in their inventories.
Defendant’s and the amicus argument suggest that ORS 820.500 does not include attachment or perfection of security interests. Granted, it is generally held that the mention of one or more things in a statute implies the exclusion of all others. See, e.g., Jeldness v. Pearce, 30 F.3d 1220 (9th Cir.1994). However, the rule is one of construction, not of law, and must be carefully applied. Cabell v. City of Cottage Grove, 170 Or. 256, 130 P.2d 1013 (1942). Courts must construe statutes in context, and consistently with the overall statutory scheme. The legislature created a comprehensive scheme for the registration, titling, and transfer of motor vehicles. It also provided that manufactured structures be subject to the same regime in virtually every respect. There is no reason to suppose that the legislature intended to exclude an essential aspect of the scheme — the attachment and perfection of security interests — and make it subject to an altogether different set of rules. In nearly all other cases, ownership and security interests are registered in the same manner. For example, all interests in real property are recorded at county recorders’ offices; all interests in motor vehicles are noted on certificates of title. I believe the legislature intended to be consistent in its treatment of manufactured structures, and to provide that ownership and security interests be monumented and perfected in the same manner. This view renders ORS 820.500 consistent with 821.510, which makes real property law applicable only after a manufactured structure is exempted from title and registration statutes.
Accordingly, I hold that ORS 820.500 makes the attachment and perfection of security interests under ORS 803.097 applicable to manufactured structures. As long as a manufactured structure is subject to the issuance of a certificate of title, the exclusive means of perfecting a security interest in it is by notation on the certificate.
The Motor Vehicle Code does provide for treatment of a manufactured structure as real property, should the owner so elect. Under ORS 820.510 the owner of a manufactured structure that is located on land to which the owner has record title may obtain an exemption from the requirement to register and title the structure under the Vehicle Code. Exemption requires surrender either of the certificate of title and registration, if those have been issued, or the Manufacturer’s Certificate of Origin. (Note that delivery of the Certificate to the DMV is also a prerequisite to the issuance of a certificate of title.) ORS 820.510(2) provides:
(2) If an exemption is obtained for a manufactured structure under this section, the following apply:
(a) except as otherwise provided in this section or by the rules of the Department, a manufactured structure, upon obtaining the exemption under this section, shall become subject to the same provisions of law in this state that would apply to any other building, housing or structure on the land. [Emphasis added].
The legislature has, in the foregoing provision, drawn a bright line: until and unless exemption from registration is allowed by the DMV, a property interest, whether ownership or security, in a manufactured structure is documented by a certificate of title issued by the Department. A security interest in a manufactured structure must be *552perfected by notation on the certificate of title. Oregon real property law regarding the attachment of fixtures to real property does not come into play until the exemption is approved. In this case, that means that Green Tree’s security interest was not perfected at the time the petition for relief was filed by the Debtors. To the extent that the application for exemption and its allowance accomplish perfection (because of the previously recorded trust deed), the perfection occurred postpetition and in derogation of the automatic stay, 11 U.S.C. § 362(a), and is therefore void.
Testimony was provided at trial that the closing escrow was conducted in a manner now customary in Oregon. Flooring financiers such as FCFC generally insist on retaining the MCO until they are paid. The statutory provenance of the MCO is that it is the statement of information described in ORS 820.500(3). However, since delivery of the statement is a prerequisite to obtaining title, lenders have employed it as a sort of certificate of title in its own right. These creditors retain the MCO as a means of insuring payment as the borrower/dealer makes sales. When asked at trial why the lender should not simply rely on its perfected security interest in the inventory, counsel for Defendant suggested, no doubt correctly, that the reason is that retention of the MCO provides protection against sale by the dealer to a bona fide purchaser, which would take free of the inventory security interest. See ORS 79.3070.
Defendant and Amicus Oregon Land Title Association argue that strict construction of the statute would have an adverse effect on the manufactured home market, since it would be difficult or impossible to acquire MCOs from flooring financiers prior to closure of the sale. However, Defendant concedes that it is not impossible to proceed in this manner.
The statute is clear and unambiguous: Oregon law requires that courts construing Oregon law look to the plain language of the statute, since the text of the statutory provision is “the starting point for interpretation and is the best evidence of the legislature’s intent.” PGE v. Bureau of Labor and Industries, 317 Or. 606, 859 P.2d 1143 (1993), Davis v. Campbell, 327 Or. 584, 965 P.2d 1017 (1998).
Given the clear statutory scheme, it is not the place of a court—especially a federal court—to consider policy arguments as to how state law may be improved. These are questions which must be addressed to the Oregon legislature. It is argued that ORS 820.510(2)(c) somehow excepts manufactured homes from the statutory scheme once they have been affixed to real estate. The provision states that the exemption process does not affect “any lien or security interest in a manufactured structure that is exempted under this section if the security interest or lien attaches before the exemption is obtained.” Defendant’s interpretation of this statute puts it squarely in conflict with ORS 820.510(2)(a), which clearly states that Real Property Doctrine is inapplicable until the exemption is obtained. Statutes should be construed as to be internally consistent. Chevron USA, Inc. v. Motor Vehicles Div., 49 Or.App. 1099, 1103, 621 P.2d 668, 670 (1980). The consistent interpretation of ORS 820.510(2)(c) is that exemption of the property does not disturb a security interest previously attached and perfected by notation on the now superfluous certificate of title.
The amicus brief further argues that the Defendant’s security interest was perfected at the time the escrow closed, because the secured party had completed the steps necessary to perfect its interest, citing to Fidelity Financial Services, Inc. v. Fink, 522 U.S. 211, 118 S.Ct. 651, 139 L.Ed.2d 571 (1998). However, Defendant here failed to do all that was necessary when it failed to require escrow instructions which in turn required the flooring financier to tender the MCO into escrow. As noted above, there is no reason this could not have been done, other than the practice of flooring financiers to withhold the certificate until payment is received outside of escrow. A party is not relieved of the duty to take certain steps to perfect its security interest simply because another party declines to cooperate.
The Defendant raises two additional affirmative defenses. First, Defendant claims *553that the flooring financier held the MCO in constructive trust for the benefit of Defendant once it was paid. There are two flaws in this argument. First, notwithstanding the practical effect of withholding delivery, the MCO is not an instrument of title. It follows that, as far as perfecting a security interest is concerned, mere possession of the MCO is of no significance. Even if the flooring financier can be said to hold the MCO in trust for Green Tree, it is not possession or delivery of the document which perfects title, but notation of the security interest on a certificate of title. The fact that the MCO must be delivered as part of the process of applying for a certificate of title does not make possession the equivalent of perfection, any more than executing, but not delivering the application would.
Defendant also asserts that it is sub-rogated to FCFC’s position as a secured creditor. Equitable subrogation occurs when one party has paid the debt of another. However, stepping into FCFC’s shoes would not be sufficient to acquire a perfected security interest in the particular unit, since it was no longer part of anyone’s inventory, and perfection by notation on the title was therefore required. ■
V. CONCLUSION
Until and unless a manufactured structure is exempted from title and registration requirements under the Motor Vehicle Code, the sole means of perfecting a security interest therein is by notation on the certificate of title. At the time the petition for relief was filed there had been neither an application for exemption nor a notation on the title. It follows that the Defendant’s security interest in the manufactured structure was unperfect-ed at the time of the petition, and subject to avoidance by the Trustee. Judgment must be entered for Plaintiff.
The foregoing constitutes the Court’s finding of fact and conclusions of law, which will not be separately stated. Counsel for the Trustee shall submit a form of judgment consistent with the foregoing.
. The record is not absolutely clear on this point: it may be that the MCO was delivered by the manufacturer directly to FCFC. However, it is not disputed that FCFC held the MCO with Woodland's consent.
. ORS 801.333(l)(a) defines "manufactured structure” as, among other Lhings, "a manufactured dwelling that is more than eight and one-half feet wide.” The MCO and other sale documents presented to the Court establish that the property in question meets this description. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492803/ | MEMORANDUM OPINION AND ORDER1
JUDITH K. FITZGERALD, Bankruptcy Judge.
AND NOW, to-wit, this 23rd day of November, 1998, before the court is Robert 0 Lampl’s Motion for Reconsideration of an order denying him a broker’s commission.
Lampl contends in ¶¶ 3-6 of his Motion that this court’s November 5, 1998, Memorandum Opinion erroneously concludes that Lampl did not represent a creditor at the sale hearing, because he stated at the hearing that he did represent a creditor. This allegation is a red herring. Since the date of the sale hearing (March 13,1998) and the date of the Memorandum Opinion (November 5, 1998), all of the claims against the estate have been adjudicated or settled with few exceptions that are not relevant to Lampl’s clients. At the time the November 5, 1998, Memorandum Opinion and Order were issued Lampl’s clients were known not to be creditors of this estate.2
The “creditor” that Movant purports to represent was identified at the sale hearing on March 13, 1998, as “Vincler & Knoll and Charles Knoll, Trustee for the Judgment of Ted Paul.” This entity, at best, had a derivative claim against this estate, as it articulated in many hearings in this court. Page 31 of the Transcript of the March 13, 1998, hearing reflects this status and includes the recognition by Mr. Lampl that “I’m wearing two hats. Both clients are aware of that and I don’t see any conflict. With regard to my representation of a creditor, it’s a derivative, indirect creditor....” (Emphasis added.)
Lampl’s clients (i.e., Vincler & Knoll and Charles Knoll) are alleged creditors of entities that may hold claims against this estate. Neither is a direct creditor of this estate, nor has either claimed to be. Charles Knoll is a lawyer who practices with the law firm of Vincler & Knoll. Ted Paul was once a client of or involved in transactions with Vincler & Knoll. Vincler & Knoll’s claim is to a distribution from Paul’s (their judgment holder) claim which is itself derivative through other entities. Paragraph 8 of Vincler & Knoll’s claim states “Vincler & Knoll has a valid claim against Paul who has a valid claim against Atlantic who has a valid claim to the SMP Escrow Fund” which is an asset of the Debtor’s estate. (Proof of Claim Addendum filed June 2, 1998). A similar derivative claim was filed by Vincler & Knoll against the Class 3 Plan Fund, sometimes referred to as the “TSM” Escrow Fund. See ¶ 13 of the Proof of Claim Addendum. A “creditor” is defined by the Bankruptcy Code as an “entity that has a claim against the debtor. . . .” 11 U.S.C. § 101(10)(A)(empha-sis added). An entity with a “derivative, indirect” claim does not fall within this defi*634nition of “creditor”.3 Thus, neither Vincler & Knoll nor Charles Knoll as Trustee for the Judgment of Ted Paul is a creditor of this estate. Moreover, even if Lampl’s clients were creditors of this estate § 506(c) does not permit this fee to be paid to Lampl for the reasons articulated in the Memorandum Opinion and Order of November 5, 1998.
The allegation at ¶ 7 of the Motion that Mr. Lampl was “solicited and encouraged to seek such a [broker’s] fee by a representative of Second Mortgage Partners and representatives of the Debtor and also ... realized that his efforts had directly created an additional fund in excess of $600,000 which went directly to thé benefit of Second Mortgage Partners” is irrelevant4 to whether he has a legal entitlement to a broker’s fee. In addition, the transcript of the sale shows that the original bidder had agreed to pay any real estate commission if he was successful. Sale Hearing Transcript, March 13, 1998, page 8, lines 5-13. In order to compare bids to determine the highest and best offer, the court required specification of the components of each bid. Had Lampl sought a commission at the hearing, rather than assuring the court that he did not seek one, the entire bid process would have differed.
It is disingenuous, at best, for Lampl to make this request for a $36,000 fee when he objected to any proposed commission for Mericle Commercial based on his assertion at the sale hearing that another person produced a buyer based on a prepetition agreement
... and maybe that buyer did agree to a brokerage commission. However, he’s not identified anywhere. No one knew about it. All we know is there’s a $50,000 commission, there’s been no application to the Court, and ... for the whole pendency of this five week case, that the sign on that building says “Sale Pending” and the mul-ti-lists regarding this building says [sic] “Sale Pending”.
Sale Hearing Transcript at 32, lines 14-21.
Lampl later induced this court to permit his client to craft its own offer rather than to bid against the contract with the initial offer- or, because of, inter alia, the five percent broker’s commission. Id. at 55, line 24; at 57, line 10; at 66 lines 21-25. Thus, Lampl’s client’s offer did not include payment of a broker’s commission because Lampl disavowed an intention to seek one. This court and the bidders at the sale relied on his statement and he has waived and/or is es-topped from claiming a commission from this estate now.
Regarding ¶¶ 10-14 of the Motion, as noted in note 9 of the Memorandum Opinion of November 5, 1998, this court has never received a proposed “settlement”' — only a proposed order to approve an unfiled and unspecified settlement. This Motion for Reconsideration fails to constitute a settlement agreement and is not a motion to approve a settlement. It should not be a surprise to Movant that this court would not sign a proposed order approving an unknown course of action.
Finally, regarding the disparaging language in ¶ 9 of the Motion, the only “extraneous” matter that “clutters the record” are certain allegations in this Motion.
For these reasons, the Motion for Reconsideration is DENIED.
. The court’s jurisdiction was not at issue. This Memorandum Opinion constitutes our findings of fact and conclusions of law.
. Since the sale hearing, Debtor has disbursed or is in the process of disbursing all funds in the estate to the creditors of the estate. None will be paid to Vincler & Knoll or Charles Knoll as Trustee for the Ted Paul judgment.
. These claims were contingent and disputed by several parties in interest.
. Moreover, the statement is factually incorrect. The $600,000 does not inure exclusively to Second Mortgage Partners under the confirmed plan. Unsecured creditors will also benefit. And, since the initial bid was $1,000,000 and the accepted bid was $1,600,000, mathematically, the "additional fund” cannot be "in excess” of $600,000. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492804/ | FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ENTRY ON COMPLAINT TO DETERMINE VALIDITY, PRIORITY AND EXTENT OF LIEN
ROBERT L. BAYT, Bankruptcy Judge.
This matter is before the Court on the Complaint to Determine Validity, Priority and Extent of Lien on Property, for Slander of Title, for Abuse of Process, and for Malicious Prosecution (“Complaint”), filed by Greenland Homes, Inc. (the “Debtor”) on October 21, 1997. E & S Marketing Resources, Inc. (the “Creditor”) filed an answer (“Answer”) to the Complaint on January 12, 1998. A trial on the Complaint was held on July 22, 1998. The Court, having considered the Complaint, the Answer, the matters presented at the July 22, 1998 trial, and the parties’ post-trial briefs, and pursuant to Federal Rule of Civil Procedure 52 and Bankruptcy Rule 7052, now makes its
*713
Findings of Fact
1. The Debtor filed a petition under Chapter 11 on September 8, 1997. The Debtor is in the business of building houses for individuals, and has continued to conduct its business as a debtor in possession since the filing of the bankruptcy petition.
2. The Creditor is in the business of providing advertising services and materials to businesses such as the Debtor.
3. Several months prior to the Debtor’s bankruptcy filing, the Debtor and the Creditor entered into a contract (the “Contract”), pursuant to which the Creditor agreed to supply the Debtor with signs, camera art, site maps, displays and various other advertising materials (the “Advertising Work”). The materials were to be used by the Debtor to market the houses that the Debtor was building in five different subdivisions. The five subdivisions covered by the Contract are Indigo Lakes, located in Fishers; Oak Commons, located in Greenfield; McKenzie Place, located in Greenfield; Whittington Village, located in Brownsburg; and Waterford Crossing (also referred to by the parties as “Shannon Lakes”), located on the south side of Indianapolis.
4. The Creditor began the Advertising Work in April of 1997, and continued the work through August of 1997. To date, the Debtor has not paid the Creditor for any of the work done pursuant to the Contract.
5. On September 3, 1997, the Creditor filed a notice of intent to hold mechanic’s lien (“Notice of Intent”) with the Office of the Recorder of Marion County, Indiana. See Plaintiffs Exhibit “C”. The lots described in the Notice of Intent are five lots located in the Debtor’s Waterford Crossing subdivision (the “Five Waterford Lots”). The Notice of Intent asserts that the Creditor is owed a debt in the amount of $68,753.73 for the following work:
for work, labor and materials furnished by Claimant for improvements of said real estate within the last sixty (60) days, which improvements are more specifically described as follows: Signs, camera art, site maps, displays and various advertising items.
6. The labor and materials that the Creditor supplied to the Debtor in performing the Advertising Work, were furnished for general sales and marketing purposes. None of the work done by the Creditor, and none of the materials that were supplied to the Debt- or, were used in the construction of a house or building on any of the Five Waterford Lots. The Creditor did not perform any physical act of labor in connection with the construction of any house or building on any of the Five Waterford Lots.1
7. The $68,753.73 debt described in the Notice of Intent is for Advertising Work that the Creditor performed in relation to all five of the Debtor’s subdivisions.
8. Prior to the filing of the instant adversary proceeding, the parties engaged in negotiations regarding the release of the Creditor’s lien on the Five Waterford Lots. See Plaintiffs Exhibit A and Defendant’s Exhibit 2. To date, the Five Waterford Lots remain encumbered by the Creditor’s lien.
The Court, based on the foregoing Findings of Fact, now makes its
Conclusions of Law
1. The Court has jurisdiction to decide this matter. 28 U.S.C. Section 1334, 28 U.S.C. Section 157.
*7142. In the Complaint, the Debtor makes several allegations concerning the mechanic’s lien (the “Mechanic’s Lien”) that resulted from the filing of the Creditor’s Notice of Intent. The Debtor alleges that the Mechanic’s Lien is not valid because the type of work that was performed by the Creditor is not covered by the Indiana mechanic’s lien statute, and because the Creditor is not within the categories of persons intended to be protected by the Indiana mechanic’s lien statute. The Debtor alleges that the Creditor’s Mechanic’s Lien is invalid, and that the filing of the Notice of Intent by the Creditor constituted slander of title, malicious prosecution, and abuse of process. The Creditor asserts that the work it performed was covered and protected by the Indiana mechanic’s lien statute, as the work added value to and made an improvement to the Debtor’s real estate. The Creditor cites Haimbaugh Landscaping, Inc. v. Jegen, 653 N.E.2d 95 (Ind.App.1995), in support of its argument.
3. At the July 22,1998 trial, after presentation of the Debtor’s case in chief, the Creditor moved to dismiss all four counts of the Debtor’s Complaint. The Court took the Creditor’s motion to dismiss under advisement, and ruled that the parties should go forward with the presentation of evidence. In its opinion today, the Court addresses the following issues raised by the Complaint, the Creditor’s response to the Complaint, and the Creditor’s motion to dismiss:
a) Did the Creditor perform work or furnish materials that resulted in an improvement to the Debtor’s real estate that is protected by the Indiana mechanic’s lien statute?
b) Is the Creditor within the categories of persons intended to be protected by the Indiana mechanic’s lien statute?
c) Was it correct to file a lien for the entire $68,753.73 debt owed, against the Five Waterford Lots?
d) Did the filing of the Notice of Intent by the Creditor, and subsequent refusal to release the Mechanic’s Lien, constitute slander of title, malicious prosecution, and abuse of process?
Did the Creditor Perform Work or Furnish Materials That Resulted in an Improvement to the Debtor’s Real Estate, that is Protected by the Indiana Mechanic’s Lien Statute
4.The Indiana mechanic’s lien statute (the “Mechanic’s Lien Statute”) is found at Indiana Code Section 32-8-3-1, and provides in relevant part as follows:
That contractors, subcontractors, mechanics, lessors leasing construction and other equipment and tools ... journeymen, laborers and all other persons performing labor or furnishing materials or machinery ... for the erection, altering, repairing or removing any house ... may have a hen separately or jointly upon the house... which they may have erected, altered, repaired, moved or removed or for which they may have furnished materials or machinery of any description, and, on the interest of the owner of the lot or parcel of land on which it stands ... to the extent of the value of any labor done, material furnished, or either____
Indiana Code Section 32-8-3-1.
5. The Mechanic’s Lien Statute provides that a party who “performs [labor or furnishes] materials” for the “erection, altering, repairing or removing [of] any house” may have a lien on the house, and on the land on which the house stands. The Mechanic’s Lien Statute refers only to “structures”, and does not include any reference to “improvements” (such as the Creditor would have the signs in issue here denominated). If the Court were to make a very narrow reading of the statute, the Court would conclude that because none of the Advertising Work included the act of “altering, repairing, or removing” a structure, the work done by the Creditor does not fall within the protection of the Mechanic’s Lien Statute. Such a narrow reading has been rejected by both the Indiana Court of Appeals, and by the Indiana Supreme Court. In Haimbaugh Landscaping, Inc. v. Jegen, 653 N.E.2d 95 (Ind.App.1995), the Indiana Court of Appeals made the following statement:
[W]e are not convinced that the statute evinces an intent to include only those materials and/or services which are provid*715ed in conjunction with a project that either creates a statutorily specified structure, or one that creates some item that is necessary and essential to the functional use of such a structure.
Jegen, 653 N.E.2d at 101. The Jegen court continued its analysis with the following statement:
While I.C. 32-8-3-1 does not specifically make lienable work which creates an ‘improvement’ upon land or work that ‘improves’ land, our Supreme Court recently concluded that ‘the erecting requirement of Indiana Code [Section] 32-8-3-1 is some physical act of labor in connection with the creation of a structure or improvement on land’____Such language convinces us that our Supreme Court has at least implicitly determined that projects involving physical labor supplied in connection with the ‘creation of ... [an] improvement on land’ are within the statute.
Jegen, 653 N.E.2d at 101-102 (citations omitted, emphasis original).
6. The Court, then, turns to an examination of Indiana case law to determine whether the “improvement” in issue here, ie., the Advertising Work performed by the Creditor pursuant to the Contract, is the type of work or “improvement” intended to be protected by the Mechanic’s Lien Statute. In Jegen, the Indiana Court of Appeals held that a landscaper who provides ornamental and decorative landscaping to a homeowner, after the original construction of the house, may acquire a lien for the labor performed and materials supplied to the homeowner. In reaching its decision, the Court of Appeals focused on the nature of the work performed, and whether the work performed added value to, or in some way benefitted, the permanent structure. The Court of Appeals held that labor and materials are lienable where they are
provided in conjunction with a project that creates an ‘improvement’ to a piece of real estate to which a structure is inextricably tied. Such an ‘improvement’ necessarily results in a valuable addition to the structure itself, and in that sense, the structure undeniably benefits from the project which created the ‘improvement’.
Jegen, 653 N.E.2d at 102.
7. In Premier Investments v. Suites of America, Inc., 644 N.E.2d 124 (Ind.1994), the Supreme Court similarly focused on whether the work in issue created a structure or improvement on land.
[T]he erecting requirement of Indiana Code [Section] 32-8-3-1 is some physical act of labor in connection with the creation of a structure or improvement on land. It follows that a contractor is within the statute only if the contractor has used some physical act of labor in connection with the creation of a structure or improvement on land.
Premier, 644 N.E.2d at 128 (holding that developer that provided real estate development services in a supervisory capacity, and not physical labor to erect a structure, was not protected by the Mechanic’s Lien Statute).
8. Here, the Creditor argues that the signs it created and the work it performed added value to the Five Waterford Lots, because advertising always increases the sales price at which new houses can be sold. Assuming, arguendo, that the Advertising Work did raise the prices at which the Debtor could market its houses, under the analyses set out in Jegen and Premier, that fact is not enough to bring the Creditor’s work within the protection of the Mechanic’s Lien Statute. Unlike the landscaper in Jegen (whose work was deemed to be protected by the statute), the Contractor here did not create an “improvement” to land, that “necessarily resulted] in a valuable addition to the structure itself’. Jegen, 653 N.E.2d at 102. The Creditor did not build or repair any structure or permanent improvement on any of the Five Waterford Lots. Here, the advertising work the Creditor performed, including signs and art work, cannot be construed as an “improvement” to the real estate, as the advertising work is not a “valuable addition” that is “inextricably tied” to the real estate. Jegen, 653 N.E.2d at 102. In fact, the signs and art work add no permanent, intrinsic value to the real estate, or any structure thereon. *716To the contrary, the signs will be removed, and the art work will be disposed of, once the Five Waterford Lots are sold. At most, the Creditor performed off-site work that increased the value of the Five Waterford Lots only indirectly, if at all. It would be mere speculation to determine the advertising value of the signs and art work performed by the Creditor. Increasing the price at which a house and lot can be sold, is not the same as increasing the value of the house and lot by adding a permanent improvement such as landscaping.
9. For all the foregoing reasons, it is the conclusion of the Court that the work performed by the Creditor does not fall within the protection of the Mechanic’s Lien Statute.
Is the Creditor Within the Categories of Persons Protected by the Indiana Mechanic’s Lien Statute
10. The Mechanic’s Lien Statute does not include definitions for the categories of persons enumerated therein, such as “contractors” and “laborers”. The Court must turn to case law for a definition of the terms used in the Mechanic’s Lien Statute.
11. The Indiana Supreme Court has held that the Mechanic’s Lien Statute is to be narrowly construed when determining the scope of persons entitled to acquire and enforce mechanic’s liens.
A mechanic’s lien was a remedy unknown at common law and is purely a statutory creation.... Provisions relating to the creation, existence or persons entitled to claim a mechanic’s lien are to be narrowly construed since the lien rights created are in derogation of common law.... Because the mechanic’s lien is purely a creature of statute, the burden is on the party asserting the lien to bring itself clearly within the strictures of the statute.
Premier Investments v. Suites of America, Inc., 644 N.E.2d 124, 127 (Ind.1994)(footnote and citations omitted).
12. The categories listed in the Mechanic’s Lien Statute are exclusive; if a lien claimant does not fall into one of the listed categories, the lien claimant is not entitled to the protection of the statute.
In Indiana Code Annotated [Sections] 32-8-3-1 and 32-8-25-1 (West 1979)[2], the legislature expressly sets forth those persons entitled to mechanic’s liens. These persons are: contractors; subcontractors; mechanics; lessors leasing construction equipment; journeymen; laborers and all other persons performing labor or furnishing materials or machinery, including the leasing of equipment or tools; registered professional engineers; registered land surveyors; and registered architects. We conclude ... that the lists in these two statutes are exclusive, i.e., unless [the lien claimant] falls within one or more of these listed categories, it is not entitled to the benefits of the mechanic’s lien statute.
Premier, 644 N.E.2d at 127-128 (footnotes omitted).
13. Here, presumably, the Creditor would argue that it qualifies as a “contractor”, “laborer”, or a person “furnishing materials”, as those terms are used in the Mechanic’s Lien Statute. The Court turns first to the argument that the Creditor was a “contractor” vis-a-vis the Debtor and the Five Waterford Lots. The fact that the Debt- or and the Creditor had a contractual relationship, standing alone, is not sufficient to bring the Creditor within the protection of the Mechanic’s Lien Statute.
Developer’s contention that it is a ‘contractor’ is based simply on the fact that it has a contract with the owner. This argument was not made in the Court of Appeals and we reject it here. It has long been the law in Indiana that a ‘contractor’ as the term is used in the mechanic’s lien statute is a person who contracts to erect or construct a building, structure or other improvement. ... [W]e conclude that the erecting requirement of Indiana Code [Section] 32-8-3-1 is some physical act of labor in connection with the creation of a structure *717or improvement on land. It follows that a contractor is within the statute only if the contractor has used some physical act of labor in connection with the creation of a structure or improvement on land.
Premier, 644 N.E.2d at 128 (citations omitted, emphasis added). Because the Creditor did not have a contract with the Debtor to build a structure or permanent improvement,3 the Creditor is not a “contractor” as that term is used in the Mechanic’s Lien Statute.
14. Presumably the Creditor would also argue that it is a “laborer” or a person “furnishing materials” vis-a-vis the Debtor and the Five Waterford Lots. It is beyond dispute that the Creditor performed some acts of physical labor when it prepared signs, camera art, site maps, and displays for the Debtor, and furnished some materials to the Debtor. The Mechanic’s Lien Statute, however, does not merely require that a lien claimant perform acts of labor or furnish materials to come within the protections of the statute; the Mechanic’s Lien Statute requires that a lien claimant perform acts of labor or furnish materials “for the erection, altering, repairing or removing ” of a house or other structure.' Indiana Code Section 32-8-3-1. The Mechanic’s Lien Statute further provides that a lien claimant has a lien on the house which the claimant “erected, altered, repaired, moved, or removed”. Indiana Code Section 32-8-3-1. Here the Creditor did not erect, alter, repair, move, or remove a structure or improvement on any of the Five Waterford Lots, and did not provide materials for the erection, alteration, repair, moving, or removing of a structure or improvement on any of the Five Waterford Lots. Accordingly, the Creditor is not a “laborer” or a person “furnishing materials”, as those terms are used in the Mechanic’s Lien Statute.
15. The Court’s decision that the Creditor did not act as a “laborer” vis-a-vis the Debtor and the Five Waterford Lots, is supported by the decision of the Indiana Supreme Court in Premier. If the developer in Premier, who located the site for the hotel, developed plans, specifications, and budgets, supervised construction, and equipped, staffed and opened the hotel, was not a “laborer”, then surely here the'Creditor should be deemed to similarly fall outside the protection of the Mechanic’s Lien Statute.
16. For all the foregoing reasons, it is the conclusion of the Court that the Creditor does not fall within the categories of persons intended to be protected by the Mechanic’s Lien Statute.
Should the Lien Have Been Filed Against the Five Lots, for all the Work that the Creditor Performed in the Debtor’s Five Subdivisions
17. The Creditor’s entitlement to its Mechanic’s Lien is problematic for several more reasons. First, there is the fact that the Creditor placed a lien on the Five Waterford Lots for the entire amount due under the Contract, for all the work that was done on the Debtor’s five subdivisions. The Creditor argues that because there was only one contract between the Debtor and the Creditor for all the work that was done, the Creditor was justified in placing its lien on the Five Waterford Lots (as opposed to placing its lien on all of the lots in all five of the subdivisions to which the work related). The evidence, however, points to the conclusion that there was more than one contract between the parties. At trial, the Creditor failed to introduce into evidence the alleged contract that covered all five subdivisions. Francine Bartfield testified that the price for the work to be done in each subdivision averaged approximately $12,000.00. The Indiana Court of Appeals has held that a mechanic’s lien cannot be had on one structure or improvement, for work done or materials furnished for another structure or improvement. Cato v. David Excavating Co., Inc., 435 N.E.2d 597 (Ind.App.1982), overruled on different ground by Johnson v. Blankenship, 688 N.E.2d 1250 (Ind.1997). Based on the evidence before the Court, and pursuant to the holding in Cato, the lien that *718the Creditor placed on the Five Waterford Lots, should have been for no more than the approximately $12,000 of work that the Creditor performed in connection with the Waterford subdivision.
18. The facts also raise the issue of whether the Creditor’s Notice of Intent was timely filed with respect to the Five Waterford Lots. See Indiana Code Section 32-8-3-3 (requiring that a mechanic’s lien be filed within 60 days of the completion of work). The Creditor argues, once again, that there was only one contract between the parties, and that accordingly, as long as the last of the work done in any of the five subdivisions was completed within 60 days of the filing of the Notice of Intent, the Notice of Intent was timely filed. Based on the Court’s above conclusion that there was a contract for each of the subdivisions, and on the fact that most of the work in-the Waterford subdivision was completed more than 60 days prior to the filing of the Creditor’s Notice of Intent,4 the Court concludes that the Notice of Intent was not timely filed with respect to work completed prior to the first week of July, 1997.
Did the Filing of the Notice of Intent Constitute Slander of Title, Malicious Prosecution, or Abuse of Process
19. Having held that the Creditor’s Mechanic Lien is invalid, the Court is faced with the question of whether the filing of the Notice of Intent, together with the Creditor’s subsequent refusal to release its lien on the Debtor’s property, constitutes slander of title, malicious prosecution, or abuse of process.
20. The Court first notes that the slander of title and malicious prosecution theories advanced by the Debtor require a showing of “malice” on the part of the unsuccessful lien claimant. The elements of slander of title have been described as follows:
The essential elements of slander of title are that false statements were made maliciously and that the plaintiff sustained pecuniary loss as a necessary and proximate consequence of the slanderous statements.
Lee & Mayfield, Inc. v. Lykowski House Moving Engineers, Inc., 489 N.E.2d 603, 608 (Ind.App.1986)(emphasis added). Where a plaintiff alleges malicious prosecution, he must prove that
the defendant instituted or caused to be instituted a prosecution against the plaintiff; the defendant acted with malice in doing so; the prosecution was instituted without probable cause; and the prosecution terminated in the plaintiffs favor.
Display Fixtures Co. v. R.L. Hatcher, Inc., 438 N.E.2d 26, 30 (Ind.App.1982)(emphasis added).
21. The witnesses for the Creditor testified at trial that the Notice of Intent was filed in good faith, and was not filed for malicious purposes. Counsel for the Creditor stated at trial that the Notice of Intent was filed in good faith, and that because the Advertising Work added “value” to the Five Waterford Lots, the Creditor had a good faith argument that it was entitled to a mechanic’s lien. Counsel for the Creditor pointed to the emphasis on “value” added to a structure or improvement, in the various decisions previously issued by the Indiana courts.
22. On balance, and having weighed the testimony of the witnesses, it is the conclusion of the Court that the Creditor did not act with malice in filing the Notice of Intent, and in refusing to release its Mechanic’s Lien on the Debtor’s property. The instant ease raises an issue of law not previously addressed by the Indiana courts, and accordingly, it is appropriate to grant some leeway in judging the good faith of the Creditor’s actions.5
*71923. Where a mechanics lien claimant falls into a category of potential lien claimants not previously addressed by the Indiana courts, reasonable persons can differ in the legal conclusions that each draws from the facts. That is what happened here. The Court finds no malice on the Creditor’s part in pursuing its arguments before this Court, and accordingly, finds that the Debtor is not entitled to damages under a slander of title or malicious prosecution theory.
24. The offense of abuse of process requires a finding of the following:
Abuse of process requires a finding of misuse or misapplication of process, for an end other than that for which it was designed to accomplish. The purpose for which the process is used is the only thing of importance.
Display, 438 N.E.2d at 31. From the testimony at trial, the Court concludes that the Creditor filed its Notice of Intent for the exact reason envisioned by the drafters of the Mechanic’s Lien Statute, ie., to increase the likelihood of the Creditor being paid for its work. The Court was presented with no evidence that the Creditor filed its Notice of Intent for a reason other than the obvious reason. Compare Display Fixtures Co. v. R.L. Hatcher, Inc., 438 N.E.2d 26 (Ind.App.1982)(finding abuse of process where supplier of equipment to liquor store filed lien to induce landlord to pressure tenant-liquor store operator to pay debt to supplier).
25. For all the foregoing reasons, it is the conclusion of the Court that the filing of the Notice of Intent, and the refusal by the Creditor to thereafter release its Mechanic’s Lien on the Debtor’s property, did not constitute slander of title, malicious prosecution, or abuse of process.
IT IS, THEREFORE, ORDERED, ADJUDGED AND DECREED that the Debt- or’s Complaint be, and hereby is, GRANTED IN PART and DENIED IN PART. Count I of the Debtor’s Complaint is hereby GRANTED, and the Creditor’s Mechanic’s Lien on the Five Waterford Lots is hereby DECLARED to be invalid. The Creditor is ORDERED to file a release of the lien in the Office of the Recorder of Marion County within 12 days of the date of this Entry. Counts II, III, and IV of the Debtor’s Complaint are hereby DENIED. The Creditor’s motion to dismiss made at trial is hereby DENIED as it relates to Count I of the Debtor’s Complaint. The Court hereby GRANTS judgment in favor of the Creditor as to Counts II, III, and IV of the Complaint.
. The Court was presented with conflicting evidence as to whether any of the signs that were erected in the Waterford Crossing subdivision, were located on the Five Waterford Lots. The three witnesses for the Creditor could not say for certain where the signs were located. At best, their testimony established that a sign was erected in Waterford Crossing on the lot on which a model was to be built. The Court was not provided with a map from which it might discern whether the lot on which a model was to be built, was one of the lots on which the Creditor placed its lien, i.e., lots 172, 184, 190, 207, and 212. See Plaintiff's Exhibit C. Accordingly, the Court must assume that none of the signs that were erected in the Waterford Crossing subdivision, were erected on the Five Waterford Lots.
Even assuming, arguendo, that one of the signs was erected on one of the Five Waterford Lots, it does not change the Court’s opinion as to whether the work performed and materials provided were covered by the Indiana mechanic’s lien statute. See Conclusions of Law 1 et seq., set out hereinbelow.'
. Indiana Code Section 32-8-25-1 affords mechanic's lien rights to engineers, surveyors, and architects, and is not in issue here.
. See Conclusions of Law 6, 7, and 8 hereinabove (finding that the Creditor did not make any "improvement” to the Five Waterford Lots, and therefore, is not entitled to the protection of the Mechanic's Lien Statute).
. A review of Plaintiffs Exhibits D through Z, and AA through 00, reveals that most of the work done in connection with Waterford Crossing, was completed by May of 1997. See Plaintiff's Exhibits E, F, H, and J. At least three pieces of work, totaling $4,702.50, were completed after the first week of July 1997, see Plaintiff's Exhibits Z, AA, and GG, and accordingly, were completed within 60 days of the filing of the Notice of Intent on September 3, 1997.
. The court is mindful of the striking difference of opinion exhibited by the Indiana Court of Appeals and the Indiana Supreme Court, in de*719ciding the Premier case. In Premier, the Indiana Court of Appeals held that the developer’s labor was protected by the Mechanic’s Lien Statute.
In the instant case, the parties stipulated that Premier’s duties as developer included locating the site, developing plans, specifications, and budgets, and supervising construction, as well as equipping, staffing and opening the hotel. It is obvious that such not only includes the supervisory duties which Indiana courts have held are lienable under the statute, but also includes other duties which would constitute 'labor' as that term has been construed.
Premier Investments, 630 N.E.2d at 237 (Ind.App.1994)(emphasis added).
What was obvious to Judge Sullivan in the Court of Appeals decision, was not so obvious to the Supreme Court in its decision. The Supreme Court held that the work performed by the developer did not constitute "labor”, and was not protected by the Mechanic's Lien Statute. Premier Investments, 644 N.E.2d at 130 (Ind.1994). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492805/ | OPINION
ROBINSON, Bankruptcy Judge.
Donald Smolen (“Smolen”) appeals from the Bankruptcy Court’s Memorandum Opinion holding that the debt owed to Smolen by debtor/defendant Jerry Hatley (“Hatley”) is dischargeable. Smolen sought to have the debt declared nondischargeable pursuant to 11 U.S.C. § 523(a)(4).1 For the reasons set forth below, we affirm.
I. Background.
In early 1994, Hatley and Smolen decided to go into business together, buying airplanes to repair, refurbish, and resell. Smolen was to provide the operating capital, supplemented by funds from third party lenders. Hat-ley, an experienced pilot, was to provide the technical expertise and labor. He was skilled in airplane repairs and had marketing expertise as well. Smolen and Hatley agreed that the proceeds from the sale of a plane would first be used to pay expenses related to the sale, including reimbursement of any funds advanced by Smolen or Hatley, with any net profit or loss to be divided equally between them.
On April 12, 1994, Hatley formed a corporation called Casa Blanca Aviation, Inc. (“Casa Blanca”). There were never any shares of stock in Casa Blanca issued, no initial or annual shareholders meetings conducted, no initial or annual directors meet*759ings held, no directors or officers elected, and no corporate books or other accounting records kept. The parties agree that the business was never run as a corporation. The primary reason Casa Blanca was formed was to obtain a state tax permit for buying and selling planes,.that would allow them to avoid paying a state levied transfer tax on the purchase and sale of planes. The two planes involved in this dispute were titled in the name of the corporation, and the state tax license for buying and selling the subject plane was held in the name of the corporation. A franchise tax return was prepared by the corporation.
Hatley and Smolen borrowed $45,000.00 from United Bank in Oklahoma City, Oklahoma, on May 23, 1994. The proceeds from this loan were used to purchase the first plane, a Cessna 421 (the “421”). The 421 was then refurbished and sold for $48,000.00 cash and a 1974 Piper Aztec plane (the “Aztec”) in trade. The Aztec was eventually refurbished and sold for $75,000.00 cash on or about June 11, 1995. Total receipts from the sale of the 421 and the Aztec (the “Planes”) equaled $125,000.00.2 No other planes were purchased or sold. All funds used to purchase the Planes and to pay the costs of repair and refurbishment came: from the United Bank loan; from proceeds of the sales of the planes; or from Smolen personally.
The $125,000.00 in sales proceeds were deposited into Hatley’s personal bank account. The parties stipulated “that Smolen knew that deposits and payments were all made from Hatley’s personal account” and the Bankruptcy Court found that “Smolen knew that deposits and payments with respect to the Planes were to be made to and from Hatley’s personal account.” From said account, Hatley paid Smolen, vendors, and United Bank a total of $80,395.75.3 Hatley used the remaining $44,604.28 for personal expenditures. The parties stipulated that Hatley owes a debt to Smolen in this amount, $44,604.28. Hatley never made any payments on this debt to Smolen. On or about March 1,1996, Hatley prepared and executed a promissory note to Smolen in the sum of $57,809.69, which Smolen testified he never accepted.
The Bankrúptcy Court found that the parties had agreed that the business was never operated as a corporation but that the corporation was merely formed for tax purposes. Hatley argued that the business was a joint venture, while Smolen argued that it was a partnership. The Bankruptcy Court found that Hatley and Smolen were partners, and that it was inconsequential whether the business was a joint venture or a partnership, since partners and joint venturers are held to the same duty in their dealings with one another. Oklahoma Co. v. O’Neil, 440 P.2d 978, 984 (Okla.1968).
The partners in this case did not have an express, written agreement that could establish the necessary fiduciary relationship. The Bankruptcy Court relied on Fowler Bros. v. Young (In re Young), 91 F.3d 1367 (10th Cir.1996), and Holaday v. Seay (In re Seay), 215 B.R. 780 (10th Cir. BAP 1997), in finding that neither Oklahoma common law nor Oklahoma statutory law, i.e., the Oklahoma Uniform Partnership Act, imposes the fiduciary duty required under § 523(a)(4). In light of the Bankruptcy Court’s finding that a fiduciary relationship did not exist within the meaning of § 523(a)(4), the Court did not need to reach the issue of defalcation.
II. Jurisdiction and Standard of Review.
A Bankruptcy Appellate Panel, with the consent of the parties, has jurisdiction to *760hear appeals from final judgments, orders, and decrees of bankruptcy judges in this circuit. 28 U.S.C.A. § 158(a), (b)(1), (c)(1). As neither party has opted to have this appeal heard by the District Court for the Northern District of Oklahoma, they are deemed to have consented to jurisdiction. 10th Cir. BAP L.R. 8001-l(d).
.We review the Bankruptcy Court’s conclusions of law de novo. Tulsa Energy, Inc. v. KPL Prod. Co. (In re Tulsa Energy, Inc.), 111 F.3d 88, 89 (10th Cir.1997). The Bankruptcy Court’s findings of fact will be rejected only if clearly erroneous. Id.
III. Discussion.
Section 523(a)(4) excepts from discharge any debt “for fraud or defalcation while acting in a fiduciary capacity.” The creditor has the burden of proving by a preponderance of the evidence that (1) a fiduciary relationship existed between the debtor and creditor, and that (2) fraud or defalcation was committed by the debtor in the course of that fiduciary relationship. Fowler Bros., 91 F.3d at 1371.
In this case, the partners did not have an express, written agreement that could establish the necessary fiduciary relationship.4 The Tenth Circuit Bankruptcy Appellate Panel has previously addressed the issue of whether Oklahoma statutory or common law creates a fiduciary relationship between partners sufficient to satisfy § 523(a)(4). In In re Seay, the Court found that neither Oklahoma common law nor the Oklahoma version of the Uniform Partnership Act (UPA) impose a trust relationship sufficient to satisfy § 523(a)(4). Seay, 215 B.R. at 786-87.
Smolen argues that the case law from non-bankruptcy courts in Oklahoma clearly establishes that there is a fiduciary duty between partners. In Seay, the Court acknowledged that the Oklahoma bankruptcy courts in Susi v. Mailath (In re Mailath), 108 B.R. 290 (Bankr.N.D.Okla.1989), and Tindale v. Blatnik (In re Blatnik), 101 B.R. 718 (Bankr.E.D.Okla.1989), found that an Oklahoma common law duty of utmost good faith between partners creates a fiduciary relationship between partners sufficient for purposes of § 523(a)(4). Seay, 215 B.R. at 787. The Court noted that these decisions are at odds with Tway v. Tway (In re Tway), 161 B.R. 274 (Bankr.W.D.Okla.1993), which was decided prior to Fowler Bros: However, the Court in Seay held that the Tenth Circuit’s decision in Fowler Bros., which the prior decision in Tway is consistent with, was the most recent and controlling decision regarding the sufficiency of a trust relationship for purposes of § 523(a)(4). Id. In Fowler Bros., the Tenth Circuit held that “ ‘[njeither a general fiduciary duty of confidence, trust, loyalty, and good faith, nor an inequality between the parties’ knowledge or bargaining power, is sufficient to establish a fiduciary relationship for purposes of dischargeability.’ ” Id. (quoting Fowler Bros., 91 F.3d at 1372).
Smolen argues that Oklahoma’s adoption of the Revised Uniform Partnership Act (“RUPA”) in 1997 codified this common law rule. Although the RUPA does not apply in this case (it was adopted after the partnership in this case was formed), Smolen argues that it demonstrates the codification of the common law existence of a fiduciary duty among partners as well as between the individual partners and the partnership. In support, Smolen cites the following provision in Oklahoma’s RUPA:
General Standards of Partner’s Conduct, (a) The only fiduciary duties a partner owes to the partnership and the other partners are the duty of loyalty and the duty of care set forth in subsections (b) and (c) of this section.
(b) A partner’s duty of loyalty to the partnership and the other partners is limited to the following:
*761(1) to account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of partnership property, including the appropriation of a partnership opportunity....
54 Okl. St. Ann. § 1 — 404(b)(1). The corresponding provision in Oklahoma’s UPA, which applies in this case, provides that:
Every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property.
54 Okl. St. Ann. § 221(1). In Seay, the Court noted that the UPA provision does not create the kind of fiduciary relationship required by § 523(a)(4). Seay, 215 B.R. at 786. Rather, the provision only creates a trust after the partners derive profits without the consent of the partnership, and the trust created is therefore the sort of trust ex male-ficio which is not sufficient for § 523(a)(4). Id. at n. 4 (citing Medved v. Novak (In re Novak), 97 B.R. 47, 59 (Bankr.D.Kan.1987)). Although the provision in the RUPA omits the language referring to profits derived “without the consent of the other partners,” § 1-404 still limits the duty to account to the partnership. It requires a partner to account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner. Thus, the RUPA does not extend the duty to individual partners, and any such extension must come from legislation.
Appellant argues that the holding in Seay is wrong. However, our decision is dictated by the principle that we are bound by prior panel decisions. A panel cannot overrule the judgment of another panel of the court. Starzynski v. Sequoia Forest Indus., 72 F.3d 816, 819 (10th Cir.1995). See Ute Indian Tribe v. Utah, 114 F.3d 1513, 1525 (10th Cir.1997) (“[Ujniform decision-making within each circuit is essential.”), cert. denied, - U.S. -, 118 S.Ct. 1034, 140 L.Ed.2d 101 (1998); Ball v. Payco-Gen-eral Am. Credits, Inc. (In re Ball), 185 B.R. 595, 597 (9th Cm. BAP 1995) (“We will not overrule our prior rulings unless a Ninth Circuit Court of Appeals decision, Supreme Court decision or subsequent legislation has undermined those rulings.”) Accordingly, Seay is controlling.
Appellant also cites Arnett v. Weiner (In re Weiner), 95 B.R. 204 (Bankr.D.Kan.1989), for the proposition that even if the UPA alone did not create a fiduciary duty, the presence of additional facts may give rise to such. In Weiner, after holding that the UPA was insufficient to create a fiduciary relationship, the court noted that “although partners are not ordinarily fiduciaries, if there are some additional facts in a particular case that evidence the existence of an express or technical trust, then the courts can find that this particular partner is a fiduciary within the meaning of section 523(a)(4).” Weiner, 95 B.R. at 207. In Weiner, the court found such additional facts. There the debtor held himself out to the other partners as both a licensed attorney and a certified public accountant. The debtor was the sole managing partner through his title of “Administrative Partner” or “Tax Matters Partner,” and had all the responsibilities that are commonly associated with a trustee, including those of collecting, segregating, investing, dispersing, and accounting for the funds. Id. Moreover, there was a partnership agreement that set out the debtor’s duties, as “Administrative Partner” and “Tax Matters Partner,” to administer and to manage the partnership on behalf of the other partners. Id. at 204-05.
In this case, Smolen and Hatley did not have an express, written agreement that could establish the necessary fiduciary relationship. Smolen argues that sufficient additional facts exist to establish that Hatley was a fiduciary. Hatley is a licensed attorney and had the sole responsibility for handling-all of the money. Hatley had all of the responsibilities associated with a trustee, including collecting, segregating, making all of the investment decisions, dispersing, and accounting for the funds. On the other hand, Smolen argues that the Bankruptcy Court erred in finding that Smolen knew that deposits and payments were to be made to and *762from Hatley’s personal account. Smolen alleges that this fact is clearly erroneous based on the following uncontroverted testimony of Smolen during the March 19,1998 trial:
A. ... I was upset with him (Hatley) that he put the money into his own account and I told him that. I said we’re not going to ever do that again and he assured me the next time he would tell me about everything beforehand. I said this is my money, it goes into my accounts. If you have anything coming, if we make a profit, you’ll get half the profit.
Aplt.App. At 20, Page 12, lines 9 to 15.
A. ... You know, I would see him in court probably two-three time a week. He would give me the invoices, I would pay those invoices directly.
Aplt.App. At 20, Page 13, lines 1 to 4.
Q. WHat about on the second airplane?
A. Okay. I was not aware of the sale of the second airplane. Now, this is all hindsight after we’ve gone through discovery. But apparently Hatley sold the second airplane on June 11th of 1995 unbeknownst to me. My wife kept saying she had a bad feeling about what was going on. And I was continuously asking Hatley where is the plane, what are you doing with the plane. He would tell me it was in Cincinnati being tried. It was in Miami, you know, Florida. You know, had all these prospective buyers. Okay. And this was through the summer months of ’95. Finally, I confronted him and he said I need to talk to you and I said you sure do. And we went downstairs in the lunch room of the Workers’ Compensation Court. This was on September the 18th of 1995. At that time he looked at me and says I’ve sold the plane. I’ve taken the money. And I looked at him and I said, Jerry, that’s the kind of thing that people go to prison for, said, what in the world are you doing. And at that time he just kind of basically spilled his guts and admitted to me that he hadn’t received 40,000 on the sale of the first plane, that it was 50,000 and that he had taken that, you know, the difference on the sale of the first plane.
Aplt.App. At 20, Page 13, line 11 to Page 14, line 9.
The parties stipulated “that Smolen knew that deposits and payments were all made from Hatley’s personal account,” and the Bankruptcy Court found that “Smolen knew that deposits and payments with respect to the Planes were to be made to and from Hatley’s personal account.” The Bankruptcy Court’s finding that Smolen knew that deposits and payments “were to be made” to and from Hatley’s personal account suggests that Smolen consented to the use of Hatley’s personal accounts. However, Smolen is arguing, and the quoted testimony suggests, that Smolen did not consent to Hatley’s use of his personal account nor to his taking action without consulting with Smolen up front. For this reason, this case is distinguishable from Weiner. Smolen’s testimony establishes that Hatley acted without Smolen’s consent. Smolen found out that Hatley was using his personal accounts after the fact, and told Hatley that they “were not going to ever do that again.”
Although Oklahoma’s UPA speaks in terms of deriving profits without the consent of the other partners, we have already noted that the provision only creates a trust after the partners derive profits without the consent of the partnership, and the trust created is therefore the sort of trust ex maleficio that is not sufficient for § 523(a)(4).
IV. Conclusion.
The Bankruptcy Court’s Memorandum Opinion declaring the debt from Hatley to Smolen dischargeable is AFFIRMED.
. Future references are to Title 11 of the United States Code unless otherwise noted.
. The parties stipulated that the gross receipts from the sale of the Planes totaled $125,000, notwithstanding that they also stipulated to the sale price of $48,000 for the 421, and $75,000 for the Aztec, which total $123,000. See Adversary Docket No. 24 at p. 2. The Bankruptcy Court noted that given the ruling of the Court, and the fact that the parties stipulated to the amount owed by Hatley to Smolen, the inconsistency as to the amount received for the Planes is of no consequence.
. The claims of United Bank and the vendors were paid in full. The United Bank loan was repaid in part from the sale of the 421; the remaining balance of principal and interest was paid by Smolen. Hatley did not use any of his own money to pay vendors, United Bank or Smolen.
. Smolen argues for the first time on appeal that an express trust was created by an oral agreement of the parties when Hatley agreed that he would not convert the funds derived from the sale of the second airplane. The argument that an express trust was created by agreement of the parties was not raised before the trial court and thus is not timely. An appellate court should not consider new issues not properly raised before the court below. Zeigler Eng'g Sales, Inc. v. Cozad (In re Cozad), 208 B.R. 495, 498 (10th Cir. BAP 1997). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488940/ | PRE-TRIAL ORDER NUMBER ONE
L. CHANDLER WATSON, Jr., Bankruptcy Judge.
The above-styled case was filed and is pending before the Court under Section 303 and Chapter 7, Title 11, United States Code, and no order for relief has been entered. The above-styled adversary proceeding was commenced by a complaint which seeks leave, pursuant to Section 362(d) of said Title 11, to foreclose a mortgage on real estate of the debtor, which collateral is alleged (in the complaint) to have a value in excess of the debt owed to the plaintiff.
An answer filed by the debtor denies that the plaintiff is entitled to relief from the stay provided for by Section 362(a) of said Title 11 and raises three preliminary issues:
1. The complaint fails to state a claim upon which relief can be granted;
2. There was insufficient service of process upon the defendant; and
3. The Court lacks jurisdiction in this adversary proceeding.
At a pre-trial conference on this proceeding, on November 4, 1980, the parties submitted to the Court for a ruling the three preliminary questions or defenses listed above. While the complaint does not allege any present right of the plaintiff to foreclose the mortgage and does not allege that the mortgage debt is in default, such is a fairly reasonable inference from the complaint and is conceded by counsel for the defendant-debtor. Although it is conceded by the plaintiff that the value of the real estate exceeds the present amount of the mortgage debt, the plaintiff contends that accruing interest and other charges may result in a partially unsecured status for the bank’s debt or claim. It is also conceded by the plaintiff’s attorney that the summons, notice, and complaint were served by the mailing of a copy of each to the debtor’s attorney of record in the bankruptcy proceeding but that none was mailed to the defendant-debtor.
CONCLUSIONS BY THE COURT
Although not to serve as a model for students of pleadings, it appears to the Court that the plaintiff’s complaint is sufficient to put the defendant on notice of the plaintiff’s claim and that evidence sufficient to justify relief from the stay against the mortgage foreclosure might be introduced under the allegations of the complaint. At most, the defendant’s charge that the complaint fails to state a claim against the defendant upon which relief may be granted would require an amendment to the complaint. The Court is of the opinion that this defense is not substantial and is not well taken. See Bankruptcy Rule 708 and Federal Rule of Civil Procedure 8.
The defense that there was insufficient service of process upon the defendant appears to be correct but also unsubstantial. Under Bankruptcy Rule 704(c)(9), process in an adversary proceeding may be served by mail upon the debtor and (if represented by counsel) upon the debtor’s attorney. Here the service was made by mailing copies only to the debtor’s attorney; however, the debt- or has appeared by his attorney of record and has filed his answer. There has been no material prejudice to the substantial rights of the debtor by the omission of mailing to him a copy of the summons, notice, and complaint. Bankruptcy Rule 704(h) expressly provides that such an error in the “manner” of service does not prevent the service from being “effective”. In addition, Federal Rule of Civil Procedure 61 made applicable by Bankruptcy Rule 905, provides that “[t]he Court at every stage of the proceeding must disregard any error or defect in the proceeding which does not affect the substantial rights of the parties.”
Lastly, the defendant’s contention that the Court lacks jurisdiction of this adversary proceeding is argued as having a basis in the debtor’s contention that one of the petitioners, in the involuntary petition, *579was not a bona fide creditor. The case before the Court is of considerable magnitude and exhibits many complex and complicated facets and is a classic example of the havoc in the affairs of the debtor and the debtor’s creditors which would result if the Bankruptcy Court has no jurisdiction to determine or settle any dispute pending the ultimate decision on the question of whether the Court will order relief against the debtor under Chapter 7 of Title 11, after a lengthy period for discovery and other pretrial matters, a long trial, and possibly further delays before a final decision. The Court does not find that this is a sound proposition.
ORDER OF THE COURT
Upon a due consideration of the three defenses stated, and for good cause found, it is ORDERED by the Court that none of said three defenses is sustained, that each is stricken from the defendant’s answer, that the stay against the foreclosure of the plaintiff’s mortgage is continued in effect pending the further order of this Court, and that this proceeding is set down for trial before this Court at the Bankruptcy Courtroom, 120 United States Courthouse, Anni-ston, Alabama, on November 13, 1980, at 1:45 o’clock p. m. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488941/ | ORDER GRANTING, IN PART, MOTION TO REQUIRE DEBTOR TO FILE A BOND TO INDEMNIFY THE ESTATE AND ORDER ENJOINING DEBTOR FROM COMMITTING WASTE
L. CHANDLER WATSON, Jr., Bankruptcy Judge.
At Anniston, Alabama, on November 17, 1980, after notice to counsel for the debtor and for the petitioning creditors, in the above-styled case, filed and pending under Section 303 and Chapter 7, Title 11, United States Code, a hearing was held before the Court upon the motion by the petitioning creditors for the Court to require the debtor to file a bond in the sum of $3,000,000.00 to indemnify the estate against loss, pursuant to Section 303(f) of said Title 11; and, after hearing the arguments of counsel and duly considering said motion, the bankruptcy judge found that said motion was well taken to the extent hereinafter granted and *580that, as a part of the relief under said motion, the debtor should be enjoined from committing waste of the estate or causing a loss to or of the property of the estate through negligence or indifference or bad faith on his part, all as a condition to the debtor’s continuing to operate his business and to use, acquire, or dispose of property, pursuant to Section 303(f); therefore, and for good cause shown or found, it is ORDERED by the Court as follows:
1. Except as hereinafter granted, said motion is denied;
2. The debtor is directed and required to make and file herein, forthwith, a bond in the sum of $200,000.00, with adequate surety thereon, conditioned to indemnify the estate in the event that an order for relief is entered in this case under Title 11 of the United States Code, against loss, depletion, or diminution of the property or assets of the estate in this case by any negligent, indifferent, or willful act of the debtor in making or committing any fraudulent transfer, gift, neglect, or other handling or transfer not done in good faith of or with respect to such assets or property;
3. Said debtor, George S. Rush, is restrained and prohibited during the penden-cy of this case from doing any act and from failing to do any act which would constitute a breach of the condition of said bond; and
4. Two copies of this order shall be sent through the United States mails to Thomas J. Knight, Esquire, who is directed and required to deliver, forthwith, a copy of this order to the said debtor, a copy of this order shall be mailed to Robert C. Dillon, Esquire, and the foregoing shall be sufficient service and notice hereof. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488942/ | ORDER ON MOTION FOR JUDGMENT ON THE PLEADINGS
ALEXANDER L. PASKAY, Chief Judge.
THIS IS an adversary proceeding and the matter under consideration is a Motion for Judgment on the Pleadings filed by James E. Basey, one of the Debtors involved in the above-captioned business reorganization case.
The proceeding instituted by Citrus Park Bank (the Bank) seeks to establish a lien on an automobile owned by the Debtor in the total amount of $2,310.46. This amount is a combination of the original amount secured by a lien on which there is a $840.25 balance and the sum of $1,476.21 which amount was not noted on the title certificate. It is the Bank’s contention that by virtue of certain language in the original promissory note, all obligations owed by the Bankrupt is secured by a lien originally granted in conjunction with the first loan on the subject automobile.
The facts controlling this controversy as revealed by the pleadings, can be briefly summarized as follows:
- On May 9, 1978, the Defendant executed and delivered to the Bank a Security Agreement granting a lien in favor of the Bank on a 1970 Chevrolet Corvette, ID # 194670S407063. On May 31, 1978, the Department of Motor Vehicles of the State of Florida issued a Motor Vehicle Certificate of Title on which the Bank was noted as the holder of the first lien securing a debt in the amount of $3,390. The certificate was issued on May 9, 1978.
On March 27, 1979, the Defendant borrowed $3,495.84 from the Bank and executed and delivered a promissory note evidencing this loan to the Bank. The present unpaid balance on the original note secured by the lien noted on the Certificate of Title is $840.25. The unpaid balance on the second note executed on March 27, 1979 is $1,476.21.
It is the contention of the Bank that the lien noted on the Certificate of Title covering the subject automobile secures not only the outstanding balance on the original note, but also the balance due on the second note.
This contention is based on certain language contained in the Security Agreement which recites, inter alia, that the Security Agreements granted to secure the payment of the original note of $3,390 and “... any *615and all other liabilities or obligations of the Borrower to the Secured Party, direct or indirect, absolute or contingent, now existing or hereafter arising, now due or hereafter to become due...”
Article 9 of the U. C. C. as adopted in this State governs the procedure to perfect security interest in personal properties in general including automobiles.
Section 679.302(3)(b) of the Fla.Stat. (1979) deals with security interest in automobiles and provides that “the filing of a financing statement otherwise required by this chapter is not necessary or effective to perfect a security interest in property subject to: (b) the following statutes of this State: Chapters 319 [Fla.Stat.] .. . . ”
Florida Statutes 319.27(2) (1979) which governs the matter under consideration provides as follows:
“(2) No liens for purchase money or as security for a debt in the form of retain title contract, conditional bill of sale, chattel mortgage, or other similar instrument, upon a motor vehicle, as now or may hereafter be defined in this state shall be enforceable in any of the courts of this state, against creditors or subsequent purchasers for a valuable consideration and without notice, unless a sworn notice of such lien showing the following information:
(a) Date and amount of lien;
(b) Kind of lien;
(c) Name and address of registered owner;
(d) Description of motor vehicle, showing make, type, and serial number; and
(e) Name and address of lien holder; has been filed in the department and such lien has been noted upon the certificate of title covering such motor vehicle, and shall be effective as constructive notice when filed.”
There is no doubt that the Bank fully complied with the perfection requirement of the Statute with regard to the original indebtedness of the Debtor in that it filed its sworn notice of lien showing the date and amount of the lien (emphasis added); the kind of the lien; the name and address of the registered owner; the description of the motor vehicle, make, type, and serial number and the name and address of the lienholder.
It is equally evident and without dispute that the Bank did not file a sworn notice of its lien showing the amount due on the second note dated March 27, 1979, as required by the Statute. Thus, there is no question that the Bank did not comply with the requirement of § 319.27(2) of Fla.Stat. Thus, while the language of the Security Agreement recited above may have created a security interest in the automobile, securing not only the original indebtedness, but also “any and all other liabilities or obligations of the Borrower ...” the Bank failed to perfect its lien with regard to the amount due on the second note, dated March 27, 1979.
This being the case, the Debtor, armed with the special voiding powers of a trustee by virtue of § 547 of the Bankruptcy Code and by virtue of a special provision of the UCC itself, Fla.Stat. § 679.302(3)(b) (1979), shall prevail and the Bank’s lien on the subject automobile secures only the outstanding balance on the first note, to wit: the sum of $840.25.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Debtor’s Motion for Judgment on the Pleadings be, and the same hereby is, granted in favor of the Debtor and against the Citrus Park Bank. It is further
ORDERED, ADJUDGED AND DECREED that the Citrus Park Bank’s duly perfected lien with an outstanding balance of $840.25 be, and the same hereby is, allowed as secured. It is further
ORDERED, ADJUDGED AND DECREED that the Citrus Park Bank’s second lien claim that is not notated on the title certificate, having an outstanding balance of $1,476.21 be, and the same hereby is, disallowed as a secured claim without prejudice to the rights of the Bank to share in the estate to the extent of its claim as unsecured. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488944/ | *827FINDINGS OF FACT- AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE coming on to be heard upon a complaint objecting to discharge and dischargeability pursuant to Interim Bankruptcy Rule 7001, and 11 U.S.C. § 523 and 11 U.S.C. § 727, filed herein by Plaintiff, DENNIS L. TRACHSEL, against the Debt- or, RICHARD FLANZBAUM, and the Court, having heard the testimony and examined the evidence presented; observed the candor and demeanor of the witnesses; considered the arguments of counsel; and being otherwise fully advised in the premises, does hereby make the following Findings of Fact and Conclusions of Law:
On March 27, 1978, the Plaintiff, DENNIS L. TRACHSEL, and the Defendant, RICHARD FLANZBAUM, the Debtor herein, entered into a stock purchase agreement whereby the Plaintiff was to purchase, for the total sum of Seventy Three Thousand, Five Hundred and 00/100 Dollars ($73,500.00), a forty nine percent (49%) stock interest in corporations known as TREASURE COAST BUILDERS, INC., and LANDMARK INVESTMENTS, INC., subsequently known as LANDPOWER INVESTMENTS, INC.
The stock purchase agreement, introduced into evidence, provided for certain matters to be performed by Defendant, RICHARD FLANZBAUM, on or before April 10,1978, including the furnishing of a non-compete agreement, the furnishing of a security bond in the amount of Fifty Thousand and 00/100 Dollars, ($50,000.00), the furnishing of a balance sheet for the corporations with a closing date of March 20, 1978, the issuance of corporate stock, and the furnishing of a list of purchasers of properties for both of said corporations (by April 15, 1978).
Plaintiff, DENNIS L. TRACHSEL, deposited the sum of Seventy Three Thousand, Five Hundred and 00/100 Dollars ($73,500.00), with the corporations’ attorney, one HAROLD H. GOLDMAN, Esquire. Despite the fact that most of the above items were not accomplished by the agreed date of April 10, 1978 or April 15, 1978, as the case may be, Defendant, RICHARD FLANZBAUM, obtained release of the Seventy Three Thousand, Five Hundred and 00/100 Dollars ($73,500.00), deposited with Mr. Goldman and utilized same for the purchase of properties and otherwise.
The said stock purchase agreement also provided for the transfer of certain lots by the Defendant from LANDMARK INVESTMENTS and/or LANDPOWER INVESTMENTS to Defendant or a new corporation to be formed by him, so long as title of said lots was in the name of LANDMARK INVESTMENTS, INC. and/or LANDPOWER INVESTMENTS, INC. or RICHARD FLANZBAUM prior to March 20, 1978. Apparently utilizing corporate funds put up by Mr. Trachsel, LANDMARK INVESTMENTS, INC., purchased three lots subsequent to March 20,1978, the deeds having been introduced into evidence at the trial herein, and said properties being described as follows:
(a) Lot 2, Block 696, Port St. Lucie Section 18, as per plat thereof recorded in Plat Book 13, Pages 17 and 17A through 17K, Public Records, St. Lu-cie County, Florida;
(b) Lot 33, Block 616, Port St. Lucie Section 18 as per plat thereof recorded in Plat Book 13, Page 17, of the Public Records of St. Lucie County, Florida;
(c) Lot 4, Block 127 of SOUTH PORT ST. LUCIE UNIT 4, as per plat thereof recorded in Plat Book 13, Pages 11 and 11A-11C, of the Public Records of St. Lucie County, Florida.
Despite Defendant having not complied with the majority of items set forth above by the agreed date, title to these lots was conveyed to a corporation, newly formed, known as SUERICH ENTERPRISES, INC., one hundred percent (100%) of the stock of which was owned by Defendant, RICHARD FLANZBAUM. There was no consideration to LANDMARK INVESTMENTS, INC. for the transfer of these three properties, which was accomplished *828by deeds introduced into evidence herein and recorded on June 5, 1978.
The said stock purchase agreement further provided, on “supplement A”, a statement signed by Defendant, RICHARD FLANZBAUM, certifying that, as to Lot 2, Block 765 Southwest Port St. Lucie Boulevard, containing a model house, said property had an appraised value of Forty Five Thousand and 00/100 Dollars ($45,000.00), and a mortgage on it, balance due March 28, 1978 in the amount of Twenty Three Thousand, Six Hundred-Fifteen and 11/100 Dollars ($23,615.11). The Court finds this to have been an express representation as to the status of title to said property. Despite this representation in writing, which was a material inducement to Plaintiff’s deposit of the aforesaid Seventy Three Thousand, Five Hundred and 00/100 Dollars ($73,500.00), Defendant, RICHARD FLANZBAUM, in his capacity as president of TREASURE COAST BUILDERS, INC., had executed and delivered to himself on January 2, 1978, approximately two and a half months prior to the aforesaid agreement with Plaintiff, a second mortgage on said property covering an indebtedness owed to him by the corporation in the approximate amount of Thirty Three Thousand, Seven Hundred-Six and 60/100 Dollars ($33,706.60). The existence of this mortgage was unknown to Plaintiff at the time he entered into the March 27, 1978 agreement and deposited the aforesaid sum of Seventy Three Thousand, Five Hundred and 00/100 Dollars ($73,500.00), and, said mortgage, which was introduced into evidence, was not recorded until June 5, 1978, coincidentally the same date upon which the title to the aforesaid three lots was transferred into the name of SUERICH ENTERPRISES, INC. Subsequently, through a closing of the sale of said property, Defendant personally realized the sum of Fifteen Thousand and 00/100 Dollars ($15,000.00) as a partial satisfaction of said mortgage.
11 U.S.C. § 523, entitled Exceptions to Discharge, provides that:
“(a) A discharge under § 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt — ...
(2) for obtaining money, property, services, or an extension, renewal, or refinance of credit, by—
(A) false pretenses, false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition ...”
Within the applicable standards governing this provision, and its predecessor under the Bankruptcy Act, the Court finds that the above conduct of Defendant/Debtor, RICHARD FLANZBAUM, in obtaining the Seventy Three Thousand, Five Hundred Dollar ($73,500.00) purchase price for the stock pursuant to the above agreement, both based upon a material false representation as to the status of title to corporate property, knowing full well he had an unrecorded mortgage against said property, undisclosed to Plaintiff, and in purchasing and conveying without consideration corporate property without the authorization of Plaintiff, and knowing full well that he had not met the terms and conditions of the stock purchase agreement for the release of corporate funds, constitutes such false pretenses, false representation and fraud as to preclude the debt owed by Defendant to Plaintiff from being discharged herein. See, Re Burton, 4 BCD 569 (BC NY 1978). Beneficial Finance Company v. Norton, 76 N.J.Super. 577, 185 A.2d 218 (1962). Forsyth v. Vehmeyer, 177 U.S. 177, 20 S.Ct. 623, 44 L.Ed. 723 (1900). Wells v. Blitch, 182 Ga. 826, 187 S.E. 86 (1936).
The Court specifically finds that each of the actions of Defendant stated above, in and of itself, constitutes sufficient false pretenses, false representation, and actual fraud as to be sufficient to bar the dis-chargeability of the debt owed by Defendant to Plaintiff. Plaintiff also objected to the discharge of Defendant pursuant to 11 U.S.C. § 727(a)(3), alleging the unjustified loss or destruction of the Debtor’s books and records, and pursuant to 11 U.S.C. § 727(a)(4), alleging the making of a false oath or account by the Debtor, on the basis of failure to list ownership of certain stock *829as well as certain interests in real property in which the Debtor has an interest.
The Plaintiff herein being by far, the largest creditor in this estate, and Plaintiff having adequately met his burden of proof in establishing the objection to discharge-ability pursuant to 11 U.S.C. § 523, and the Defendant having put on no evidence to effectively rebut the evidence presented by Plaintiff, the Court finds it unnecessary to reach the issue of objection to discharge pursuant to 11 U.S.C. § 727. The Court therefore withholds ruling on the matters alleged in Count II of Plaintiff’s Complaint, without prejudice.
Based on the foregoing, the Court finds and concludes that all scheduled debts owing by the Debtor, RICHARD FLANZB-AUM, the Defendant herein, to the Plaintiff, DENNIS L. TRACHSEL, shall be excepted from the Defendant’s/Debtor’s discharge herein, pursuant to 11 U.S.C. § 523(a)(2)(A). A final judgment will be entered in accordance with these findings and conclusions. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488947/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This matter came on for the Court’s consideration on the Application for Compensa*35tion of Attorney for the Trustee and the Objections thereto filed by the Attorney for the Bankrupts. Pursuant to the Order of this Court dated February 20, 1980, the Court bases its decision on the Objection upon the pleadings and original and supplemental memoranda supplied to the Court. The issue being identical in each case, the matters are consolidated for decision.
FINDINGS OF FACTS
The Bankrupts, Larry Scholl Hanson and Karen Louise Hanson, sold their place of business, The Paper Cellar, on November 27, 1978. According to the terms of the sale, Peter D. Gwyn, Attorney for the Buyer, Sara G. Burand, retained in “escrow” the sum of $2,500.00 from the purchase money for payment of taxes which would become immediately due and payable upon the sale of the business, in compliance with Section 5739.14 of the Ohio Revised Code.
On December 21,1978, Larry Hanson and Karen Hanson each filed a petition in bankruptcy, individually and d/b/a The Paper Cellar. Each received a discharge on April 4, 1979.
In the Trustee’s Report of Receipts filed December 19, 1979, for both Larry S. Hanson (B78-1348) and Karen L. Hanson (B78-1349), the Trustee reported as part of each of the Bankrupt’s estates, one-half of the funds placed in “escrow” from the sale of The Paper Cellar, or $1,250.00 per ease. The Trustee demanded and received the funds from the Attorney the Buyer, Peter D. Gwyn, a few weeks after the petitions in bankruptcy were filed.
It appears that the total amount of the $2,500.00 is claimed by the Trustee as properly part of the estate from which the Trustee argues he is entitled to compensation for attorney services rendered by him on his behalf as Trustee.
STATEMENT OF ISSUES
In his supplemental memorandum, the Trustee argues that the Bankrupts’ Objection to Trustee’s Application for Compensation for Attorney for Trustee is procedurally in error because:
1.) it seeks to determine ownership of assets, and
2.) it requests that certain assets, namely the $2,500.00 set aside out of the purchase money, be returned to a third party (the Attorney for the Buyer) not before the Court.
The Trustee further argues that the appropriate procedure for a third party to recover assets from the Trustee is a complaint for reclamation.
Pursuant to the equitable powers of the Bankruptcy Court (Section 2 of the Bankruptcy Act) and to Fed.R.Civ.P. 8(f), the Court, in the interests of judicial economy and substantial fairness, will construe the Objection of the Bankrupts to the Application for Compensation of Attorney for the Trustee as a Complaint for Reclamation on behalf of the purchasers of The Paper Cellar.
The Bankruptcy Act clearly provides that actual and necessary expenses and costs incurred by the Trustee shall be reported in detail under oath, and, if approved, they shall be paid out of the estates in which they were incurred. Section 62 Bankruptcy Act, 11 U.S.C. § 102. The basis of the Bankrupts’ Objection to the Trustee’s application is that the $2,500.00 does not properly constitute property of the estate out of which the Trustee or the Attorney for the Trustee may be paid. The Trustee, among other things, argues that the $2,500.00 passed to him upon the filing of the petitions in bankruptcy under Section 70(a)(8) of the Bankruptcy Act:
“(8) property held by an assignee for the benefit of creditors appointed under an assignment which constituted an act of bankruptcy, which property shall, for purposes of this Act, be deemed to be held by the assignee as the agent of the bankrupt and shall be subject to the summary jurisdiction of the Court.”
The Trustee has gone to some length to demonstrate an “attempted” preferential transfer by the withholding of the $2,500.00 fund. Apparently, the Trustee’s theory is *36that certain state taxing authorities were owed sales taxes collected by the Bankrupts during 1976 and 1978; the establishment of the $2,500.00 fund constituted an attempt to pay the taxing authorities on an antecedent debt within four months of the filing of the petitions in bankruptcy while the Bankrupts were insolvent, enabling the sales tax authorities to obtain a greater percentage of their debts than other creditors of the same classification.
Alternatively, the Trustee argues that his status as a lien creditor conferred by Section 70(c)(3) entitles him to administer the $2,500.00 as an asset of the estate because the taxing authorities with an interest in the $2,500.00 fund failed to perfect their interest pursuant to Chapter 1309 of the Ohio Revised Code (Article 9, Uniform Commercial Code).
The success of the Trustee’s arguments depends primarily upon whether the $2,500.00 fund did in fact pass to the Trustee as property of the estate upon the filing of the petitions.
The Court finds that the $2,500.00 fund does not come within the provision of Section 70(a)(8) as property of an assignment for the benefit of creditors which would constitute an act of bankruptcy. To establish an act of bankruptcy under Section 3(a)(4) of the Bankruptcy Act, a general assignment for the benefit of creditors must be present. It must be shown that there was “a transfer by a debtor of the legal and equitable title to all his property to a trustee, with authority to liquidate his affairs and distribute the proceeds equitably to his creditors,” or that a transfer of property has the effect of the foregoing. Central Fibre Products v. Hardin, 82 F.2d 692 (5th Cir. 1936, citing United States v. Middle States Oil, 18 F.2d 231 (8th Cir. 1927). See also J.J.S. Co., Inc. v. Sacks, 445 F.2d 138 (7th Cir. 1971).
The Trustee’s argument that the creation of the fund constitutes a preference must also fail. Section 60(a)(1) of the Bankruptcy Act defines a preference as (1) a transfer of any property of the debtor made or suffered by the debtor, (2) to or for the benefit of a creditor, (3) for or on account of an antecedent debt, (4) while the debtor is insolvent, (5) within four months of bankruptcy. Under Section 60(b) a preference is voidable by the trustee in bankruptcy only upon proof of the additional element that the creditor to be benefited by the preference had reasonable cause to believe that the debtor was insolvent. The burden of proving these essential elements rests with the trustee seeking to avoid the transfer. Aulick v. Largent, 295 F.2d 41 (4th Cir. 1961). The Trustee in this case has failed to meet this burden.
It is yet unclear whether the $2,500.00 fund was in fact property of the Bankrupts. Counsel for the Bankrupts argues that the Bankrupts had no control over or access to this money other than for the statutorily prescribed disposition pursuant to Section 5739.14 of the Ohio Revised Code. That Section states:
“If any person liable for the taxes levied by or pursuant to sections 5739.01 to 5739.31, inclusive, of the Revised Code, sells his business or stock of merchandise, or quits his business, the taxes and interest or penalty imposed by or pursuant to such sections on sales made prior to that time shall become due and payable immediately, and such person shall make a final return within fifteen days after the date of selling or quitting business. His successor shall withhold a sufficient amount of the purchase money to cover the amount of such taxes, interest, and penalties due and unpaid until the former owner produces a receipt from the tax commissioner showing that the taxes, interest, and penalties have been paid, or a certificate indicating that no taxes are due. If the purchaser of the business or stock of goods fails to withhold purchase money, he shall be personally liable for the payment of the taxes, interest, and penalties accrued and unpaid during the operation of the business by the former owner.”
CONCLUSIONS OF LAW
It appears to the Court that the Buyer of the business was acting in compliance with *37the law of the State of Ohio by withholding from the purchase price an amount sufficient to cover taxes and penalties on sales of the business made prior to the Buyer’s acquisition of the business. The Court finds that this withholding pursuant to a valid state law constitutes neither a preference nor an act of bankruptcy as an assignment for the benefit of creditors. The Attorney for the Buyer of the business was acting merely as a trustee under a statutory obligation for the benefit of the State of Ohio sales tax authority. Having found the existence of a statutory trust, the Court further finds that the case of Selby v. Ford Motor Company, 590 F.2d 642 (6th Cir. 1979) is decisive of this matter, wherein the Court held that statutory trusts arise automatically and no notice or filing is required to render the trust effective against the claims of a trustee in bankruptcy. Selby, supra at 648-49 (Headnote 6).
The claims of the State of Ohio for sales taxes are as follows:
1.) For December, 1975 and November, 1976, mathematical error resulted in a deficiency of $60.06, including penalty;
2.) Sales taxes due for June through November 1978, total $1,274.36 including penalty.
Based on the foregoing, it is
ORDERED, ADJUDGED and DECREED that the Bankrupts’ Objection to Trustee’s Application for Compensation of Attorney for Trustee be, and hereby is, SUSTAINED to the extent that compensation out of the $2,500.00 fund would diminish the amount available to the State of Ohio for sales taxes due and owing as a result of the transfer of the business. It is
FURTHER ORDERED that the Trustee in Bankruptcy turn over to Peter D. Gwyn, the Attorney for the Buyer of The Paper Cellar, the amount of $1,334.42 out of the $2,500.00, the remainder to be administered as an asset of the Bankrupts’ estates. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488948/ | ORDER STAYING PROCEEDINGS OF NATIONAL LABOR RELATIONS BOARD
STEPHEN B. COLEMAN, Bankruptcy Judge.
This matter has come before the Court upon the application of the Debtor, Brada Miller Freight System, Inc., in which the Trustee, William Cassell Stewart, concurs for an order of this Court staying proceedings by the National Labor Relations Board against the Debtor. From the application, from the affidavit filed, and after oral argument by counsel for the Debtor, counsel for the Trustee, each in support of the application, it appears to the Court that immediate and irreparable injury, loss, and damage will result to the Debtor before the National Labor Relations Board or its attorneys can appear in opposition.
Attorney Steve Johnson of the firm of Silberman, Silberman and Loeb was present in chambers on December 4, and in court on December 5, 1980, as an observer.
The application is based upon the penden-cy of National Labor Relations Board proceedings in NLRB Cases 25-CA-12509, 25-CA-12509-2, 25-CA-12510, 25-CA-12511, 25-CA-12511-2, 25-CA-12512, and 25-CA-12827, set for administrative hearing December 8, 1980, in Indianapolis, Indiana, and upon a petition brought by the National Labor Relations Board for preliminary injunction in Case IP80-1195C in the United States District Court for the Southern *62District of Indiana, Indianapolis Division. From the application it further appears that diversion of personnel and money from the day-to-day operations of the Debtor in order to attend and defend the proceedings in Indianapolis would cause immediate and irreparable injury, loss, and damage to the Debtor.
The Court finds that the effect of the National Labor Relations Board administrative proceedings and the District Court Case IP80-1195C would substantially thwart and frustrate the operation of the Debtor and the ability to effect an arrangement otherwise available to it under Chapter 11 of the Bankruptcy Code of 1978.
The Court further finds that the effect of the National Labor Relations Board administrative proceedings and the District Court case mentioned in the preceding paragraph would be to frustrate the jurisdiction of this Court over the Debtor, its property and operations.
The Court finds that the application is well taken and a proper order should be made to protect the jurisdiction of this Court and to protect and relieve the Debtor from the burden of defending multiple proceedings which appear to arise from the rejection of the collective bargaining agreement in accordance with an order of this Court of August 5, 1980. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488949/ | MEMORANDUM AND ORDER
ROBERT L. EISEN, Bankruptcy Judge.
I.
This matter was heard on the petition of 20 East Cedar Condominium Association for determination of the allocation of proceeds of a $100,000 certificate of deposit presently in the hands of the trustee. The debtors herein are Melvin R. Luster, Harold E. Friedman and Luster, Friedman & Company, a partnership formed by the two individual debtors. The petitioning condominium association became a creditor by virtue of a judgment entered by the Circuit Court of Cook County, Chancery Division in cause number 74 CH 50. The judgment is in favor of petitioner and against Melvin R. Luster and Harold E. Friedman, individually and d/b/a Luster, Friedman and Company and is in the amount of $171,359. The asset in issue, a $100,000 certificate of deposit held by the trustee, is under the name of 20 East Cedar Properties, a joint venture formed by the two individual debtors.
The issue to be decided is what happens to the asset of a joint venture upon dissolution. The parties agreed that the sole asset of the joint venture is the $100,000 certificate of deposit. (See Answer and Counterclaim). Petitioner contends that the court should distribute the $100,000 certificate of deposit to the creditors of the joint venture. The parties also agree that Luster, Friedman and Company, a debtor herein, is a creditor of the joint venture in the amount of $82,000. (See stipulation of facts). Therefore, petitioner contends that the $100,000 certificate of deposit becomes an asset of the debtor, subject to the claims of debtors’ creditors. The trustee contends that when the joint venture was dissolved in 1977, its $100,000 certificate of deposit became an asset of the individual debtors and that the petitioner must file claims against the individual debtors without priority over creditors of said individuals.
This court finds that petitioner is a judgment creditor of the debtors herein, the joint venture’s sole asset is the $100,000 certificate of deposit and the joint venture owes Luster, Friedman and Company $82,-000. Finally, the court finds that the joint venture had not terminated its affairs in 1977 but was still in existence in 1978. The trustee alleged that the joint venture was terminated in 1977 and that its assets were distributed to the joint venturers, the individual debtors herein. However, in May 1978 the two individual debtors, by and for *185the joint venture, agreed to let Donald Luster use the $100,000 certificate of deposit as collateral for a loan. Donald Luster was still using the certificate of deposit when the instant bankruptcy petitions were filed. (See stipulation of facts). Therefore, in 1978 the joint venture and its sole asset, the $100,000 certificate of deposit, were still in existence and subject to the claims of creditors.
The general rule is that “when a joint venture is found to exist the legal principles pertaining to the relationship between partners govern.” Burtrell v. First Charter Service Corp., 76 Ill.2d 427, 31 Ill.Dec. 178, 394 N.E.2d 380 (1979). The trustee argues that the joint venture was terminated in 1977, thus this court has no power over the joint venture. However, this court believes the trustee fails to properly distinguish termination from dissolution and winding up. Before a partnership or joint venture can be terminated, there must first be a dissolution and then a winding-up of affairs. The Illinois Supreme court has stated “on dissolution, a partnership is not terminated but continues until the winding up of its affairs is completed.” (Emphasis added). Burtrell, supra. Another Illinois case stated:
The order of events is: (1) dissolution; (2) winding up; and (3) termination. Termination extinguishes their (the partners) authority. It is the ultimate result of the winding up and occurs at the conclusion of the winding up. Englestein v. Mackie, 35 Ill.App.2d 276, 182 N.E.2d 351 (1962).
Pursuant to the above authorities, this court has the power to wind up the affairs of the joint venture. Section 40 of the Uniform Partnership Act (S.H.A., ch. IO6V2, § 40) provides that:
In settling accounts between the partners after dissolution, the following rules shall be observed. ..
******
(b) The liabilities of the partnership shall rank in order of payment, as follows:
I. Those owing to creditors other than partners, (Emphasis added). S.H.A., ch. 1061/2, § 40(b)(1). Finally, section 40 of the Uniform Partnership Act provides that:
When partnership property and the individual properties of the partners are in possession of a court for distribution, partnership creditors shall have priority on partnership property and separate creditors on individual property....
S.H.A., ch. IO6I/2, § 40(h).
Based on the foregoing findings of fact and conclusions of law the court concludes that $82,000 of the $100,000 certificate of deposit under the name of the joint venture is the property of Luster, Friedman and Company, partnership debtor herein. Since the partnership is the sole creditor of the joint venture, the balance of the certificate of deposit shall be equally divided between Melvin R. Luster and Harold E. Friedman as their individual property. Pursuant to S.H.A., ch. IO6V2, § 40(h), supra, petitioner as a judgment creditor of the partnership has a priority interest in the $82,000 that is the partnership property. Since the petitioner is also a judgment creditor of the individual debtors herein, petitioner is entitled to share pro-rata with other creditors of the individual debtors in the balance of the certificate of deposit that is the property of the individual debtors.
WHEREFORE, IT IS HEREBY ORDERED that the trustee release $82,00 from the $100,000 certificate of deposit he holds into the estate of Luster, Friedman and Company, debtor in case no. 78 B 9573.
IT IS FURTHER ORDERED that the trustee equally divide the balance of the $100,000 certificate of deposit between the estates of Melvin R. Luster, no. 78 B 9574 and Harold E. Friedman, no. 78 B 9575.
II.
This matter was heard on the counterclaim of the trustee naming 20 East Cedar Condominium Association as counter-defendant. By his counterclaim, the trustee seeks a turnover order and seeks to avoid liens upon the property of the debtors. Said liens were created by the counterde-fendant in an attempt by counterdefendant to collect the judgment rendered in its fa*186vor by the Circuit Court of Cook County in case no. 74 CH 50.
The trustee’s counterclaim is based upon 11 U.S.C. § 107(a)(1) which states that:
Every lien against the property of a person obtained by attachment, judgment, levy or other equitable process or proceedings within four months before the filing of a petition.. .shall be deemed null and void (a) if at the time when such Hen was obtained such person was insolvent. (Emphasis added).
The trustee has alleged in his pleadings that the debtors were insolvent when the liens attached. However, there was no ‘strict proof’ of insolvency. There is no presumption of insolvency at the time the lien was obtained and the trustee has the burden “to plead and prove the insolvency of the debt- or at the time the lien was secured.” 4 Collier on Bankruptcy, par. 67.05, page 99-100 (14th ed.). The trustee has not proven insolvency.
THEREFORE, IT IS HEREBY ORDERED that the counterclaim of counter-plaintiff be and hereby is dismissed and denied in the absence of such proof of insolvency. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488950/ | ORDER DETERMINING DEBT TO BE DISCHARGEABLE
LEONARD C. GARTNER, Bankruptcy Judge.
This cause came on to be heard upon the complaint of plaintiff, filed September 24, 1980, objecting to the dischargeability of its debt pursuant to 11 U.S.C. § 523(a); upon the answer of the defendant filed November 28, 1980, and upon the testimony and the exhibits.
11 U.S.C. § 523(a) provides in pertinent part:
“A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt — . . . (2) for obtaining money, property, services, or an extension, renewal, or refinancing of credit by — .. .
(B) use of a statement in writing — ...
(i)that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for obtaining such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive; ... ” The matter in controversy concerns the
refinancing of a loan with Avco Financial Services on May 19,1980 by the debtor, and the issuance of a statement of indebtedness which is alleged to be materially false and relied upon by plaintiff in granting the loan.
The testimony reveals that debtor’s first loan transaction with Avco, a retail installment contract, was in 1978. This loan was refinanced in 1978, 1979 and again in May, 1980 (the transaction in question herein).
At the time of this last financing agreement, debtor was married but separated from her husband (since 1978) and had filed for a divorce. This fact is important in that it reveals the debtor’s state of mind and intent in listing the debts on the statement of indebtedness. Presently, the couple is residing together.
When the debtor separated from her husband he took, as the debtor testified, . .. “everything with him”, and agreed to pay all the debts. When asked to list all her obligations, debtor’s understanding, as revealed through her testimony, was that she was to list only those debts she solely owed and incurred after the separation. She was not aware of any responsibility on her husband’s debts or their joint ones during cov-erture, since the “cards were in his name”. The debts alleged to have been left off the statement were separate accounts, and accounts which were genuinely understood by the debtor to her husband’s sole responsibility and those which he agreed to pay.
The substance of such testimony (irref-futed) shows lack of an intent to deceive by the debtor as a requisite to nondischarge-ability under 11 U.S.C. 523(a).
Plaintiff has the burden of proof, set forth by In re Paul Edward Campbell, No. *22556018 (S.D.Ohio, 1972) to establish the non-dischargeability of a debt by clear and convincing evidence. Such burden has not been met.
The debt of Jodie Joan Hamer arising from the transaction with Avco Financial Services on May 19, 1980, is declared dis-chargeable.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488954/ | ORDER DENYING CONFIRMATION OF CHAPTER 13 PLAN
JOSEPH A. GASSEN, Bankruptcy Judge.
This matter came before the court on December 29, 1980 to consider confirmation of the debtor’s chapter 13 plan.
The chapter 13 plan as submitted proposes to pay unsecured creditors fifty percent of their claims. All debts being considered as unsecured by the debtor in his plan total less than $3,000. His assets exceed $10,000 in value.
Therefore, the proposed chapter 13 plan cannot be confirmed by reason of the provisions of 11 U.S.C. § 1325(a)(4) which require that the value of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7.
The debtor in his schedule B-4 has attempted to claim the almost $12,000 equity in his residence, his equity in a 1978 Mercury Cougar, and his clothing as exempt under Article 10, Section 4 of the Florida Constitution. However, that exemption requires that the debtor be the head of a family. The court finds that the debtor’s claim to be the head of a family within the Florida constitutional provision is erroneous.
The debtor asserts that the “family” of which he claims to be “head” consists of himself and one Jane Mower, whom he identifies as his fiancee, and her child, Michelle Mower, who live with him in his home and whom he supports. He does not maintain that there is any legal family which he has a legal or moral obligation to support. No evidence has been presented from which the court might conclude that there is any legal or moral obligation upon the debtor to support either Jane Mower or her child.
Debtor in his memorandum of law in support of confirmation of the plan notwithstanding these circumstances, misplaces his reliance upon In Re Kionka’s Estate, 113 So.2d 603 (Fla. 2d DCA 1959). The holding of the Second District Court of Appeals in that case which was affirmed by the Supreme Court of Florida at 121 So.2d 644 makes it clear that the “moral” obligation must be more than the fleeting desire and intention of the giver and the recipient of such support.
*466In this case, the fragility of the alleged “moral” obligation precludes the debtor from head of family status. If either the debtor or Jane Mower should marry someone else or if either should tell the other to “get lost”, the support pattern would quickly terminate.
Debtor further suggests that the recent so-called “palimony” cases now being litigated in some jurisdictions would form a basis for finding the necessary moral obligation in the instant case to enable the debtor to qualify as “head of a family”. However, the debtor does not furnish us any authorities upon which he or we might rely. Press accounts of the so-called “palimony” cases seem to indicate that where the plaintiffs are deemed to have a cause of action it is on the basis of some express or implied contract. That is not the issue here where we are determining only whether debtor is “head of a family.”
While many of the Florida cases have been quite liberal in defining the head of a family for exemption and other purposes, the court is aware of no case the ruling in which would be sufficiently liberal to bring the debtor in this case within the “head of family” definition. Debtor suggests that that which was formerly considered “immoral” [as well as illegal (§ 798.02 F.S.A.)] should now be decreed to be the basis of a “moral obligation” by this court. This we decline to do. It is, therefore,
ORDERED and ADJUDGED that confirmation of the chapter 13 plan of the debtor herein be, and it is hereby, denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488955/ | DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
This matter is before the Court for disposition of the plaintiff’s complaint to deny *514the above debtor her discharge in bankruptcy. The parties did not submit a finalized pretrial order as directed or post-trial mem-oranda; therefore, the following decision is primarily factual, based upon the evidence adduced at the trial held October 20, 1980 and the record.
The defendant, Vera J. R. McCraney, filed her petition for relief under Chapter 7 of Title 11, United States Code, on January 22, 1980. The Statement of Affairs accompanying the Petition shows that Ms. McCra-ney has been unemployed and totally disabled for three and one-half (3V2) years. At Item 11 of the Statement, she declares that she had made no repayments on outstanding loans within the year immediately preceding the filing of her Petition. Item 14 shows that the debtor had sustained a loss by theft in November, 1979, of property valued at approximately $11,000.00. This loss was covered, in part, by Allstate Insurance Company, and the debtor recouped $7,000.00 of the loss. In her Schedules of Debts and Property, the debtor lists no priority creditors and no creditors holding security; however, she does list $19,822.00 worth of unsecured claims. On October 20, 1980, (the date of the trial herein) the debt- or amended her Schedules to include eight additional unsecured creditors with unsecured claims totalling approximately $5,327.00. The debtor’s estate contains no real property; she lists personal property valued at $5,400.00, consisting mainly of household goods and furnishings. Ms. McCraney claims her wearing apparel to be exempt to the extent of $300.00 and other personal property to be exempt to the extent of $400.00.
The plaintiff, as trustee, instituted this action on May 13, 1980, to object to the discharge of the debtor. The complaint contains the following allegations:
4. The debtor has committed offenses punishable by imprisonment or a fine as provided under Title 18, United States Code, Section 152, in that the debtor knowingly and fraudulently made a false oath or account in or in relation to her bankruptcy proceedings; and, in contemplation of bankruptcy proceedings by her, or with intent to defeat the bankruptcy law, knowingly and fraudulently transferred or concealed her property.
5. The debtor has:
(a) Failed to schedule as creditors, Sears Roebuck Co., American Express, Rike’s, Dayton Power & Light Co., Shell Oil Company, Ohio Bell Telephone Co., Kline Department Store, Nieman-Marcus Department Store, J. C. Penneys.
(b) Failed to disclose transfers of property by gifts to family members during the year immediately preceding the filing of the original petition, and stated under oath and penalty of perjury that no transfers were made, when in fact within approximately two weeks preceding the filing of the original petition the debtor made One Thousand Dollar ($1,000.00) gifts to each of her children, to wit: Larry Reamey, Derrick Reamey, and Cheryl Reamey, whose addresses are 1701 Longwood Avenue, Apt. 2, Los Ange-les, California 90019, and Two Hundred Dollars ($200.00) to her father, Walter Reamey, 1221 Everton Drive, Apt. 507, Akron, Ohio, 44307.
(c) Failed to disclose repayments of loans during the year immediately preceding the filing of the original petition and stated under oath and penalty of perjury that no repayments had been made, when in fact within approximately two weeks preceding the filing of the original petition the debtor repaid a One Thousand Dollar ($1,000.00) loan to her father, Walter Reamey.
(d) Falsified her Schedule B-2 in that her wearing apparel, jewelry, and other personal possessions was stated to have a market value of $300.00, when she had purchased $587.24 worth of clothing from Nieman-Marcus between December 3, 1979, and December 6, 1979.
*515(e) Failed to disclose a theft loss during the year immediately preceding the filing of the original petition and that the loss was covered by insurance, to-wit: a loss of two rings and other personal property on a bus to Akron, Ohio, on or about October 26, 1979, with an insurance settlement of $2,717.00 with Allstate Insurance Company.
We direct our attention first to item 5.(a) of the complaint. The Court would note that the debtor filed an amendment tp Schedule A-3 on October 20,1980 to include those creditors listed in the complaint. Thus, we find the record supports the allegation that the debtor failed to schedule certain creditors.
The record supports the plaintiff’s allegation in paragraph 5.(b) that the defendant transferred approximately $1,000.00 to each of her three children immediately prior to filing her petition with this Court. The defendant testified that these payments were made as reimbursements to the individuals for losses they sustained in the November, 1979, theft which occurred at the defendant’s residence. The defendant contends the property transferred was not property of the debtor but was merely a transfer of the children’s property back to them. The plaintiff submitted a document titled “REPORT OF ROBBER [sic] for Allstate Insurance Company” dated November 15, 1979 and marked as Plaintiff’s Exhibit A. This document represents a list of the property stolen from the defendant’s residence in November, 1979 for which she requests reimbursement from Allstate Insurance Company. The document consists mainly of items of clothing; $10,629.41 worth of clothing which is not identified as to ownership; $1,549.14 worth of clothing which is identified as “Daughter’s Clothes”; and $217.00 worth of radios and recorders. There is only one item in the entire list which is identified as belonging to the debt- or’s son; it is a portable radio dated 1977 and valued at $39.00. This document is the only evidence in the record supporting Ms. McCraney’s claim that $3,000.00 worth of the property stolen from her residence in fact belonged to her children.
Based upon the testimony and the exhibit presented, we find that the allegations of the plaintiff’s complaint at paragraph 5.(b) are true. The trustee has shown that the debtor received a substantial amount of cash just prior to filing a petition with this Court and that she then transferred the cash to others. In light of the cavalier response to her duties to file an honest statement of affairs and schedules, and not false and purposefully misleading, we believe the burden at least shifted to the defendant to prove that she was not transferring her own property out of the potential bankruptcy estate. Although we believe the evidence may in part support the defendant’s claim that $1,000.00 worth of the large insurance settlement she received from Allstate Insurance Company was reimbursement for her daughter’s loss of wearing apparel in the November, 1979, theft loss, we do not believe the evidence in any fashion supports her claim that each of her two sons also lost at least $1,000.00 worth of property in that theft and that the money transferred to them was merely a reimbursement for their own property.
Turning to item 5.(c) of the complaint, we find testimony in the record by the debtor acknowledging the fact that she repaid a loan to her father in the approximate amount of $1,000.00 within two weeks prior to the date she filed in this Court. She testified that she had orally informed the trustee of this fact.
The complaint also alleges that the defendant falsified Schedule B-2 by failing to list wearing apparel recently purchased for $587.24. The defendant testified that this purchase from the Nieman-Marcus Department Store was on the account of one of her sons. The Court is convinced that this purchase was probably made for the defendant’s son; therefore, we find that the debtor’s failure to list items purchased in her Schedule of personal property does not constitute a falsification of that document.
The debtor testified regarding circumstances surrounding the allegations in para*516graph 5.(e) of the complaint. In that paragraph, the trustee alleges that the debtor incurred a theft loss in October, 1979 for which she was reimbursed by Allstate Insurance Company. The debtor admitted to incurring this loss, to valuing the stolen property at $2,717.00 and to receiving reimbursement in the form of a replacement of such property. The debtor did not receive a cash settlement of her claim. We would note that the debtor did not list this theft loss in her Statement of Affairs, nor did she list any personal property in Schedule B-2 amounting to $2,717.00.
The Court has no hesitancy or reservation in this matter determining whether the defendant did all of the above acts with the intent to hinder, defraud or delay her creditors and with the intention to falsify her petition and duties to disclose such matters and property to this Court.
Because of the magnitude of the debtor’s concealment and transfer of property immediately prior to bankruptcy and the facts she failed to disclose, as well as the amount of personal property she did not list and her failure to disclose the October, 1979, theft loss and accompanying recovery, we find that the defendant committed the acts contained in paragraphs 4., 5.(a), (b), (c) and (e) of the complaint with the intention to falsify her petition to this Court and with the intent to hinder, defraud and delay her creditors.
Accordingly, it is ORDERED, ADJUDGED AND DECREED that the defendant, Vera J. R. McCraney, be and is hereby DENIED a discharge in bankruptcy. It is further
ORDERED, ADJUDGED AND DECREED that denial of the discharge is a proper disposition of the malfeasance and litigation and the court does not now deem it necessary to refer the matter to the United States Attorney for the Southern District of Ohio for investigation or prosecution pursuant to 18 U.S.C.A. §§ 3057 and 3284. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488956/ | MEMORANDUM AND ORDER
ROBERT L. EISEN, Bankruptcy Judge.
This matter came to be heard on the complaint of The Marling Group (hereinafter ‘Lessor’) to vacate the automatic stay imposed by 11 U.S.C. § 362(a). Having considered the entire record of the case, and being fully advised in the premises, the Court makes the following findings of fact and conclusions of law.
The pertinent facts are not really disputed. Debtor operates a restaurant on property leased from lessor. The lease at paragraph 13 provides that:
... in case of the non-payment of the rent ... or of the breach of any covenant in this lease . . ., lessee’s right to possession of the premises thereupon shall terminate, with or without any notice or demand whatsoever, .. . and if the lessor so elects, . . ., and with or without notice *557of such election or any notice or demand whatsoever, this lease shall thereupon terminate ... (emphasis added).
The lease also provides that rent is payable monthly in advance. The debtor frequently failed to pay rent in a timely manner, thereby breaching a covenant in the lease. Lessor apparently never gave debtor any notice that such late payments would no longer be tolerated and thenceforth insisted upon strict compliance with the lease regarding the timeliness of rent payments.
On October 13,1980 lessor hand-delivered a letter to debtor stating that: “According to the terms of your lease . . . lessor has elected to terminate said lease on this . . . day” because of “failure to pay rent ... on a timely basis.” Debtor filed a petition under Chapter 11 of the Bankruptcy Code on November 12, 1980.
Lessor contends that pursuant to the letter of October 13,1980, the lease was terminated, that debtor has no interest in the leased premises and that lessor should be allowed to proceed in state court on a forcible entry and detainer action. Debtor contends that by sending the termination letter, lessor waived his lease right to terminate without notice and thus lessor is bound to comply with the provisions of the Illinois Landlord and Tenant Act. S.H.A. ch. 80, § 1 et seq.
The lease provided that upon nonpayment of rent the lease could be terminated without notice. Under Illinois law the
parties may, by agreement in writing, waive the necessity of the landlord giving the tenant any notice of the termination of the lease by reason of any default in the payment of rent .. .
Sandra Frocks, Inc. v. Ziff, 397 Ill. 497 at 502, 74 N.E.2d 699 (1947).
However, lessor had previously accepted late rent payments without notifying debt- or that late payments were an intolerable breach of a lease covenant. Under the above circumstances,
notwithstanding the provision of the lease with respect to notice, it was the duty of the plaintiffs to notify the defendant of the intention to insist upon a strict compliance with the terms of the lease as written, . . .
Sixeas v. Fogel, 253 Ill.App. 579 at 582 (1929). Based upon the above facts and case authorities, this Court holds that lessor waived his right to forfeiture without notice, and since the October 13, 1980 letter did not comply with the provisions of the Illinois Landlord and Tenant Act1 said attempted forfeiture was ineffective.
A further and more compelling ground for denying lessor the relief he seeks is based upon the general rule that:
A court may grant relief against the termination of a lease by forfeiture where equitable circumstances warrant such relief.
24 Illinois Law and Practice, Landlord and Tenant, § 242. In Illinois,
the rule is well established that equity will relieve a tenant from an attempted forfeiture for nonpayment of rent on a fixed date.
Famous Permanent Wave Shops, Inc. v. Smith, 302 Ill.App. 178, at 183-184, 23 N.E.2d 767 (1939). See Sixeas, supra; Illinois Merchants Trust Co. v. Harvey, 335 Ill. 284, at 294-295, 167 N.E. 69 (1929). .In the instant case the equities favor the debtor and this Court will protect the debtor from the attempted forfeiture. Lessor waived his right to declare a forfeiture without notice by accepting late rent payments without notifying the debtor that late payments would not be tolerated.2
Finally, debtor’s business is that of a restaurant which depends for its survival on the location regularly and continuously occupied by it and with which a substantial number of its patrons have become famil*558iar. Therefore, the leased premises in question are essential to any plan of reorganization which the debtor is likely to propose,
WHEREFORE, IT IS HEREBY ORDERED that the complaint of the Marling Group to vacate the automatic stay imposed by 11 U.S.C. § 362(a) be and hereby is denied.
. Under the Illinois Landlord and Tenant Act, S.H.A. ch. 80, § 1, et. seq., § 8 provides for a 5-day notice for Demand for Rent, whereas § 9 provides for a 10-day notice under a Notice to Quit.
. This Court, however, hereby orders the debt- or to continue making current rent payments in the amount agreed upon in the lease. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488957/ | ORDER FINDING DEBT OF BESSIE NOBLE AGAINST THOMAS LEWIS REYNOLDS DISCHARGEABLE IN FULL.
LEONARD C. GARTNER, Bankruptcy Judge.
The Two Faces of Janus
The god Janus of the ancient Romans is depicted as having two faces, each looking in opposite directions. Such is the basis for the month of January, last month, looking back, looking forward.
The present litigation has two such faces in two different courses. An analysis and comment is in order.
The debtor, in his petition for relief filed April 28, 1980, schedules Bessie Noble as a creditor as the result of a judgment in the Hamilton County Common Pleas Court against him in the amount claimed of $40,-232.85. Actually the judgment was for $47,500.00 (Exhibit 1).
On June 26, 1980 Bessie Noble filed her complaint to determine said debt to be non-dischargeable as therein set forth, to which, on August 20, 1980, the debtor answered. The cause came on for hearings, and the decision depends upon the interpretation of that portion of 11 U.S.C. § 523 which denies a discharge to a debtor.
“Section 523. Exceptions to discharge.
(а) A discharge under section 727,1141, or 1328(b) of this title does not discharge an individual debtor from any debt— * * *
(б) for willful and malicious injury by the debtor to another entity or to the property of another entity;”
There was lengthy testimony, Ohio statutory arguments, deposition, judgment by the Hamilton County Common Pleas Court, and a jury verdict upon which judgment was entered.
The prime controversy centers around whether or not this Court should review the proceedings of the common pleas court.
The basic facts, while involved, are not overwhelmingly so. Mrs. Noble stored her belongings with the debtor, did not pay the charges as required, so that Reynolds sold the merchandise for his fee, and in the process went amiss of the Ohio Statutory provisions for such procedure. The Hamilton County Common Pleas Court found in favor of Mrs. Noble.
The question is: Should this Court make an independent finding as a result of a hearing pursuant to § 523, or adopt the judgment of the Hamilton County Common Pleas Court. Like the two heads of Janus, there are opposing views.
See, Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979); In Re Day, 4 B.R. 750 (Bkrtcy.S.D.Ohio, 1980); In Re Manitta, 1 B.R..393 (B.J., C.D.Calif., 1979); In Re Willis, 2 B.R. 566 (B.J., M.D. Ga., 1980) for a full discussion of the topic.
It is the decision of this Court that the former view be adopted and that there was no “willful and malicious injury” by the debtor. Note that the “willful and malicious” feature of former 11 U.S.C. § 35(a)(2) has been removed from present 11 U.S.C. § 523. The debtor in this instance exercised his proper right in disposing of the merchandise but misused the Ohio procedural method in doing so. Such is not “willful and malicious injury”.
The corollary problem in this case is that seemingly the debtor, through counsel, concedes that $7500.00 of the debt is nondis-chargeable because it was a punitive award by a jury on which judgment was entered. Again the head of Janus — the jury was imposing liability for certain conduct of the debtor. The jury charge (Ex. 4) talks about constructive malice. This Court is unable to find that kind of malice which is nondis-chargeable in bankruptcy, and hence the jury’s undetailed verdict and this Court’s attitude are at odds — The Court will not adopt the concession of counsel for the debtor.
The entire debt of Bessie Noble against Thomas Lewis Reynolds, dba, Tommy Reyn*621olds Moving and Storage Company, arising out of the judgment in the Court of Common Pleas, Hamilton County, Ohio, Case No. A7607635, is declared dischargeable.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488958/ | PEDER K. ECKER, Bankruptcy Judge.
William J. Pfeiffer, as Trustee for the bankruptcy of Albert John Dutt, filed a Complaint against Haybuster Manufacturing, Inc., hereinafter Creditor. Trustee requested this Bankruptcy Court to declare that the Trustee’s interest, by virtue of the bankruptcy provisions, is superior to Creditor’s interest in certain specific property. Creditor’s Answer alleged the affirmative defense that Creditor, by virtue of having obtained a Judgment and the Clerk of Courts having issued and the Sheriff having received a Writ of Execution, has a superior lien to that of the Trustee’s in the property in question.
At the trial held by the Court, Counsel stipulated to the facts.
FACTS
Creditor claims a security interest in the following described personal property of Debtor:
“1 Haybuster Chaff Saver Model CR-9,75 S/N 7545
1 Haybuster Chaff Saver Model CR-9,75 S/N 1700
1 Haybuster Chaff Saver Model CR-9,75 S/N 1542
1 Haybuster Chaff Saver Model CR-9,75 S/N 7539
1 Haybuster Chaff Saver Model CR-9,75 S/N 1536.”
Creditor claimed a security interest in the above described property by virtue of a Judgment obtained against Debtor and docketed with the Clerk of Courts for Brown County, South Dakota, on February 29,1980; at which time the Clerk of Courts for Brown County issued a Writ of Execution which the Sheriff of Brown County received on February 29,1980. The Sheriff did not file the Notice of Levy upon the above described property with the Register of Deeds for Brown County until April 4, 1980. Debtor filed his Chapter 7 bankruptcy on March 20, 1980. Nothing except the Sheriff’s own lack of diligence prevented *656the Sheriff from levying upon the property prior to March 20, 1980.
ISSUE
Counsel presented the issue of whether a judgment creditor is an unsecured creditor where a sheriff receives a writ of execution before the date the debtor filed bankruptcy but, due to the sheriff’s lack of diligence, the sheriff does not levy upon the property until after the debtor has filed bankruptcy.
Creditor argued in its brief that a judgment lien becomes a lien upon the personal property when a writ of execution is issued and received by the sheriff’s office. Further, Creditor argued that it should not be denied its priority and preference as a lien-holder merely because of the Sheriff’s lack of diligence.
This Bankruptcy Court does not need to decide whether under state law a judgment creditor has a security interest in specific property upon the issuance by the clerk of courts and receipt by the sheriff of a writ of execution. The earliest that Creditor could claim a valid lien upon the property is February 29, 1980, which is the date when Creditor obtained its Judgment. Assuming for purposes of this decision that February 29,1980, is the date Creditor’s lien attached to Debtor’s property, 11 U.S.C. Section 547(b) avoids any transfer of Debtor’s property made on or within 90 days before the date of the filing of the petition if the other elements are met. 11 U.S.C. Section 101(40) defines transfer as meaning “every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest.”
4 Collier on Bankruptcy, 15th Ed., Section 547.12 at Page 547-41, while discussing the effect of 11 U.S.C. Section 547(b), commented:
“This eliminates difficulties that arise from the fact that the mere entry of a judgment may or may not create a lien, and thus could hardly give a creditor a preferred standing where something additional was necessary before a lien resulted. Nevertheless, the entry of a judgment and creation of a lien in pursuance thereof may give rise to a preference because the comprehensive definition of a “transfer” now stated in section 101(40) includes “every mode ... of disposing of or parting with property or with an interest in property . . .”. It is now clear that not only any form of a judgment, but any judicial proceeding that fixes a lien upon the property of the debtor and that comes within the other requisites of section 547(b) will constitute a preference.
Thus a confession of judgment within 90 days of bankruptcy that results in a lien or is followed by execution and levy is a preference if the other necessary elements are present. . . . Likewise, it would appear that any type of legal or equitable proceeding that creates a lien, such as a garnishment proceeding, creditor’s bill attachment or other similar process, could be classified as a “transfer” within the meaning of sections 101(40) and 547.
Section 547, however, is concerned primarily with judgments or judicial proceedings that create liens within the 90-day period to secure claims that previously had no preferential standing.”
Thus, a transfer occurs when a creditor’s judgment lien attaches to specific property within 90 days prior to the filing of the debtor’s bankruptcy petition. Such a transfer is avoidable as an 11 U.S.C. Section 547(b) preferential transfer if all the other elements are met. 11 U.S.C. Section 547(b) provides:
Except as provided in subsection (c) of this section, the trustee may avoid any transfer of property of the debtor—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; . . .
*657(5) that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
Here, Creditor obtained a judgment lien on Debtor’s property within 90 days before the date of Debtor’s filing bankruptcy. The state court awarded the judgment and created the lien to Creditor on account of an antecedent debt owed by Debtor to Creditor. The transfer benefited Creditor. The transfer was made while Debtor was insolvent. 11 U.S.C. Section 547(f) provides that a debtor is presumed to have been insolvent during the 90 days immediately preceding the date of the filing of the petition. The transfer does enable Creditor to receive more than it would have received if the transfer had not been made. Thus, Creditor’s lien is avoidable under Section 547(b).
CONCLUSION
For the above reasons, this Bankruptcy Court holds that Trustee’s interest in the property described earlier is superior to that of Creditor’s interest in the property. For purposes of this bankruptcy, Trustee is entitled to treat Creditor as a general unsecured claimant.
The Trustee shall submit a Judgment consistent with the foregoing. This Memorandum Decision shall constitute Findings of Fact and Conclusions of Law. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488959/ | FINDINGS AND CONCLUSIONS
JOSEPH A. GASSEN, Bankruptcy Judge.
This adversary proceeding was tried before the court on December 3, 1980 upon the three-count complaint of the plaintiff, Eastern Airlines Employees Federal Credit Union. The complaint itself refers only to nondischargeability of the three separate obligations in the three counts of the complaint. However, in its memorandum of law filed post trial, the plaintiff also objects to the discharge of the defendant-debtors under a “disappearance or shortage of assets” theory which could barely be inferred from the complaint if at all. Plaintiff’s complaint refers to 11 U.S.C. § 727 in discussing nondischargeability of debts. However, at trial, plaintiff conceded that the nondischargeability of debt aspects were, in fact, tried under 11 U.S.C. § 523(a)(2)(B). As aforesaid, plaintiff renewed its reference to 11 U.S.C. § 727(a)(5) in its memorandum of law on the theory that the debtors were not entitled to discharge.
Each of the obligations of the defendant-debtors to the plaintiff was as a result of a separate transaction. Count I refers to a loan obtained by the debtor, Gail Kirby on March 4, 1980 in the amount of $1,500 (Plaintiff’s Exhibit No. 1). This brought a previously existing indebtedness in the amount of $1,336 up to $2,836.
Defendant Gail Kirby’s stated purpose for the new funds was for “closing costs” in the purchase of a residence. On March 9, 1980, the defendant-debtors did in fact enter into a purchase agreement for a house (Plaintiff’s Exhibit No. 5) which recited that a $300 deposit had been made prior to that time and $1,700 was being additionally deposited at that time. The agreement further required that an additional $4,100 would be paid at time of closing which was estimated to be in June or July, 1980.
*707The defendants were relying on settlement funds from other matters to generate the needed cash at closing. However, it became apparent prior to the closing date that those funds would not be available and that the defendant-debtors would not be able to close on the purchase of the residence. They so informed the seller under the purchase agreement and were refunded their deposit. Instead of repaying any part of their loan to the plaintiff, the defendants utilized the refund of that deposit to pay other bills and to meet current expenses.
In Count I, the plaintiff complains that since these funds were earmarked as “closing costs”, they should have been returned to the plaintiff and the loan cancelled as soon as the debtors knew they could not go forward with the purchase of the home and had their deposit refunded to them. In addition, in and by Count I, the plaintiff alleges that the application for the additional loan was made and the funds obtained when the defendant, Gail Kirby, was insolvent and that she failed to disclose that fact to the plaintiff. Plaintiff also seeks to make a point of the fact that at the time of the advance of the additional $1,500 the real purpose was to complete the deposit on the purchase agreement and not for closing costs as stated on the application.
Technically, the making of a loan at a time that the borrower is insolvent does not make that obligation nondischargeable under any sub-section of 11 U.S.C. § 523. However, the thrust of the plaintiffs contention in that regard is that the defendant, Gail Kirby, did not disclose all of her obligations on the application for the new loan, which failure would except the debt from discharge under 11 U.S.C. § 523(a)(2)(B). The defendant, Gail Kirby, testified that the necessity for a detailed listing of prior obligations was discounted by the agents of the plaintiff who processed her application. (The evidence on this as to Count I and Count II will be discussed in greater detail below.) She also testified that she was under the impression that practically all, if not all, of the previous obligations were those of her husband, the defendant, David Charles Kirby.
In Count II, the plaintiff is seeking to have an obligation created on September 13, 1979 declared to be excepted from discharge. The proceeds from that loan in the total amount of $4,770.98 were used to pay a $2,470.98 balance on an automobile and to generate $2,300 in cash funds to the borrower, the defendant-debtor, David C. Kirby. The application and loan information on this obligation is set forth in Plaintiff’s Exhibit No. 2.
David C. Kirby testified that when making the application he told the employee of the plaintiff who took it that he could not remember all of his debts and did not have the details with him. According to David Kirby, that agent of the plaintiff told him to just put down what he could remember and that it was not necessary for him to bring in any additional information the next day as Kirby volunteered to do. The Kirbys do not deny that they did, in fact, owe the amounts alleged by the plaintiff in its complaint at the time of the loan applications.
A witness, Ed Calcagnon, also testified on behalf of the defendants. He is an Eastern Airlines employee who has borrowed fifteen to twenty times from the plaintiff. He confirmed that on many of the occasions, he was told by agents of the plaintiff in taking applications for loans not to worry about listing his other obligations and at least half of the time that he succeeded in getting loans. The loan officers knew of the omissions in his applications and approved the loans notwithstanding. The testimony of the defendants and their witness indicate that the plaintiff did not particularly care whether or not an applicant for loan was completely disclosive of his other obligations on the loan application. This testimony was completely unrebutted by the plaintiff. The plaintiff relied solely on the documents which were admitted into evidence without any other testimony.
In Count III, plaintiff contends that the defendant, David C. Kirby, applied to it for a MasterCharge account through an application and agreement in that regard (Plain*708tiff’s Exhibit No. 3) which was violated by the defendant exceeding the $1,000 limit and continuing to use the card after its termination and after the filing of the chapter 7 petition by the defendants on June 26, 1980. The agreement reflects a limit of $1,000 having been inserted by the plaintiff and there is no evidence to show when that insertion was made. The $1,000 limitation is written below the defendant’s signature and below a space marked “credit union use only”.
The defendants testified that they knew that the MasterCharge account had been terminated only when they attempted to use it and the merchant told them that the card was on a list of unuseable cards. The defendants further testified that they were under the impression that they could continue using the card as long as they made the monthly minimum payments. There is no evidence that they had ever received actual termination notice or that they incurred any further charges after knowing that the card had been put on an unuseable list. The plaintiff offered no evidence of the amount of any charges after the filing of the chapter 7 petition. The debtors listed the MasterCharge account as $2,000 in their schedule A-3 in the main proceeding, Case No. 80-00776-BKC-JAG.
The court has carefully considered the evidence and the applicable law as furnished to it in the memoranda filed by the parties and its own research and concludes that the plaintiff has failed to establish any basis upon which this court can hold any of the three obligations to be excepted from discharge under 11 U.S.C. § 523 or deny a discharge to the defendants or either of them under 11 U.S.C. § 727.
As to the assertion that the failure to list all of the obligations on the loan applications referred to in Counts I and II should cause those obligations to be excepted from discharge, the court finds that the plaintiff has failed to establish any basis therefor under 11 U.S.C. § 523. Under § 523(a)(2)(B)(iii), the creditor must reasonably rely upon any statement in writing that is materially false. Even assuming that the loan applications referred to in Counts I and II were materially false, there is absolutely no evidence that the plaintiff relied upon those statements. Most of the evidence is to the contrary in that all of the witnesses testified that it was customary for the plaintiff to make loans upon applications which were known to it not to include the borrower’s entire financial picture. As a matter of fact, the unrefuted testimony was that the debtors were encouraged not to fret or worry over any exclusion of information on the applications.
Likewise, the failure to repay the loan referred to in Count I after the purchase of the residence was abandoned and the deposit money refunded to the defendants does not cause that obligation to be excepted from discharge or discharge to be denied to the defendants. The court cannot agree that the explanation given by the defendants that the refund was spent for current bills and other obligations is totally unreasonable. There is no evidence to indicate that the defendants had any of this money and failed to include it in their bankruptcy schedules. It does not stretch the imagination of the court to conclude that the sum of $2,000 could easily have been dissipated in such a manner from the time it was returned to the defendants shortly after March 9,1980 and June 26,1980 under the financial circumstances of this family with the cost of living that prevailed at that time. The evidence clearly shows that the proceeds of the loan referred to in Count I were used to complete the deposit on the purchase agreement for the new home even though it was referred to as “closing costs” on the loan application rather than “deposit on purchase”. There is nothing to render that obligation nondischargeable by reason of the debtor’s failure to repay that loan when its ultimate purpose was frustrated, which frustration occurred after the loan was completed. See In re Mixed Bag et a 1., 21 C.B.C. 342 (D.C.Vt.1979).
The fact that the debtors exceeded their credit limit on the MasterCharge account and continued to use the account *709after that limit was exceeded does not form any basis for excepting the obligation from discharge or denying debtors the relief of discharge. Most creditors who come to us are overextended in their obligations and have exceeded the limits under which they can repay their obligations. The only part of the debt discharged however, is that which existed on the date of filing of the chapter 7 petition in Case No. 80-00776-BKC-JAG on June 26, 1980 at which time the order for relief was entered. 11 U.S.C. § 727(b). The debtors’ schedules reflect that obligation to be $2,000 at that time. There is no contradictory evidence before the court as to the amount of the indebtedness at that time.
Therefore, all of the relief sought by the plaintiff either as to excepting any of the three obligations referred to in its complaint from discharge or denying discharge to the defendants or either of them is denied. As required by Bankruptcy Rule 921(a), a separate judgment consistent herewith is being entered this date. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488962/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
These causes came on to be heard upon Plaintiff’s complaint to obtain injunctive and other relief and the counterclaim of the Defendant The Chase Manhattan Bank, N.A. (“Chase”) and upon the verified application of Chase filed in the case of Waterside Towers, Inc., Case No. 80-00481-BKC-SMW. They were tried by the Court on June 26 and 27, and on August 8,12 and 14, 1980. The Court, having heard the testimony and examined the evidence presented, having observed the candor and demeanor of the witnesses, having considered the arguments of counsel, and being otherwise *792fully advised in the premises, does hereby make the following findings of fact and conclusions of law:
On April 28,1980, Chase filed an involuntary petition under Chapter 7 of the Bankruptcy Code against Waterside Towers, Inc. On that same day, Chase also filed involuntary petitions under Chapter 7 against R. S. Grist Company, Irvin Freedman, and Grace Freedman; all four cases were directed to be jointly administered by an Order of this Court dated April 28, 1980. Immediately upon filing of the petition, Chase moved for and obtained the ex parte appointment of an interim trustee for each of the four estates, and Justin P. Havee was accordingly appointed interim trustee and at all material times has been the interim trustee for the estate of Waterside Towers, Inc. Thereafter, on May 22, 1980, Chase filed a Verified Application seeking to have the petition filed against Waterside Towers, Inc. amended to be deemed to have been filed against Waterside Apartments, Inc. and to have the order appointing Justin P. Havee as interim trustee amended to provide that he be appointed interim trustee for the estate of Waterside Apartments, Inc. On the same date, Waterside Apartments, Inc. filed its complaint to obtain a declaration that Chase and Justin P. Havee have no right, title, or interest in the property of Waterside Apartments, Inc., to enjoin Justin P. Havee from interfering with the property of Waterside Apartments, Inc., and for damages caused by the interference of Chase and Justin P. Havee with the property of Waterside Apartments, Inc. Because the legal and factual issues of the complaint, the counterclaim, and the verified application are the same, the Court tried the matters together and is here entering common findings of fact and conclusions of law.
This Court has jurisdiction of this case under 28 U.S.C. § 1471(a) and has jurisdiction of the adversary proceeding under 28 U.S.C. § 1471(b).
The Plaintiff Waterside Apartments, Inc. (“Waterside Apartments”) is a Florida corporation with its principal place of business in Dade County, Florida. The Defendant Chase is a national banking association located in New York, New York, and the Defendant Justin P. Havee is the duly appointed qualified and acting Interim Trustee for the estate of Waterside Towers, Inc.
The focal issue presented to the Court is whether Chase holds a claim against Waterside Apartments or, phrased differently, whether Waterside Apartments is the alleged debtor in the Waterside Towers, Inc. bankruptcy case. This Court concludes that Chase does hold a claim against Waterside Apartments and that Waterside Apartments is the alleged debtor in the pending bankruptcy case of Waterside Towers, Inc.
The center of attention of this case is Waterside Towers, an 118-unit apartment building located at 2450 Northeast 135th Street in North Miami, Florida. At the time this bankruptcy case was instituted, the building was being converted into a condominium with sales, marketing, and management being provided by Keyes Management Company. The building had been conveyed to Waterside Apartments, Inc. on May 18, 1979, by the reorganization trustee of Tower 2450, Inc. in another bankruptcy case pending before this Court.
Initially in this case, there was confusion and uncertainty over whether there was an alleged debtor in existence — although the involuntary petition under Chapter 7 was filed against Waterside Towers, Inc., it turns out that there is no entity with that name. However, the evidence clearly has established that Waterside Towers, Inc. is the same corporation as Waterside Apartments, Inc. and that the confusion arose due to the fact that the officers of Waterside Apartments, Inc. as well as persons from Keyes Management Company and others who dealt with Waterside Apartments, Inc. used variations of the name “Waterside” to denominate the corporation and its primary asset, the building. The evidence raised no question whether the term “Waterside Towers, Inc.” could apply to any entity other than Waterside Apartments, Inc. Accordingly, this Court finds *793that the term “Waterside Towers, Inc.” is merely a misnomer for the corporation Waterside Apartments, Inc. and that the corporate entity Waterside Apartments, Inc. is the alleged debtor in this bankruptcy case.
The significance of the misnomer in this case is that Chase holds a note in the amount of $2.96 million executed in the name of Waterside Towers, Inc. This note is supported by a corporate resolution in the name of Waterside Towers, Inc. executed by the officers of Waterside Apartments, Inc. In addition, Chase holds a guaranty of Sandy Brous, a vice president of Waterside Apartments, referring to an obligation of “Waterside Towers, Inc.” as well as a guaranty of R. S. Grist Company also referring to an indebtedness of “Waterside Towers, Inc.” Of course, this misnomer does not affect the validity of the loan documentation. The case law of Florida, as well as general common law throughout the United States, is that an instrument will be enforced against a misnamed corporation if the identity of the corporation can be determined with certainty. Morton v. Mercantile National Bank of Miami Beach, 185 So.2d 172 (Fla. 3d DCA 1966); American Ladder & Scaffold Co. v. Miami Ventilated Awning Co., 150 So.2d 268 (Fla. 3d DCA 1963). “[I]t is well settled that so long as the corporate entity is the same, its acts and deeds are not vitiated by [a minor] departure from the corporate name. Absolute accuracy in the corporate name or title is not essential to a valid exercise of corporate power.... ” Chew v. First Presbyterian Church, 237 F. 219, 234 (D.Del.1916). See also Elbert v. Wilmington Turngemeinde, 7 Boyce 355, 30 Del. 355, 107 A. 215 (1919); St. Matthew’s Evangelical Lutheran Church v. United States Fidelity & Guaranty Co., 222 Mich. 256, 192 N.W. 784 (1923). These cases demonstrate that of primary significance is whether the misnamed party can be identified with sufficient certainty to distinguish it from other possible parties. In this case, from the evidence presented, it is clear, and the Court so finds, that the misnamed party to the loan documentation is Waterside Apartments, Inc.
This, however, is not the end of the matter. Waterside Apartments, Inc. also has asserted that the loan documentation was forged by officers of Chase; or that the persons who executed the loan documentation had no authority from the corporation to execute the documentation; and, finally, that there was no consideration for the obligation. The balance of the credible testimony and the documents in evidence, however, negate each of these contentions.
The Court finds that the evidence Waterside Apartments presented did not prove1 that any of the documents were forged, let alone forged by Chase. On the contrary, the evidence compels the finding that the essential documents are genuine and that no forgery can be attributed to Chase.
First and foremost, there was no direct testimony of any forgery by Chase. Those inferences which counsel for Waterside Apartments tried to draw in order to fill the gap had little or no basis in the evidence. Moreover, the Court finds that those inferences are not credible in the light of the demeanor of the witnesses and the undisputed aspects of the case.
The sole document upon which Waterside Apartments sought to place significant reliance is a financial statement which purports, on its face, to have been prepared by a Miami accounting firm, Leader & Levi. A partner in that concern denied that it had issued the document. On the other hand he testified that the firm did prepare financial statements for the Freedmans and R. S. Grist Company, all participants in the loan transaction. But he also testified that these documents were never delivered to Chase. Thus the question of the origin of the financial statement remains unclear.
*794Yet if one assumes that Leader & Levi did not prepare the financial statements, Waterside Apartments still has failed to demonstrate just who did prepare it. The document, after all, could have been written by the principals of Waterside Apartments just as well as by Chase; or for that matter, by third parties for reasons of their own.
Furthermore, when the other documents in evidence are considered in the light of the testimony which the Court heard and observed, they are sufficient to bind Waterside Apartments. Specifically, the record includes a $2.96 million note in the name of Waterside Towers, Inc., a corporate resolution authorizing the execution of the note, guarantees executed by R. S. Grist Company, by Arthur and Symee Greenfield (president and secretary, respectively, of Waterside Apartments), and by Sandy Brous, and a new account signature card for the checking account to be opened at Chase in connection with the loan.
The signatures on each document appear regular on their face. Symee Greenfield authenticated the signature of Sandy Brous on the note. Mr. Brous also submitted to Chase a personal guaranty of the indebtedness and signed the new account card as vice president. Moreover Mr. Brous signed the guaranty of the Waterside Apartments obligation by R. S. Grist Company and the corporate resolution of Waterside Apartments authorizing the president or vice president, acting individually, to borrow money and obtain credit on behalf of the corporation.
Symee Greenfield and Arthur Greenfield testified that they too signed the corporate resolution authorizing the borrowing, as well as a personal guaranty of the obligation. Symee Greenfield also signed the new account signature card.
Irvin Freedman was in control of the R. S. Grist Company and, until March, 1980, in control of Waterside Apartments. He testified that the Waterside note had been executed by Arthur Greenfield rather than by Sandy Brous. On the totality of the evidence, the Court must reject his testimony on this point. Mr. Brous’ signature is on the note and has not been questioned by any handwriting expert. On the contrary, the Greenfields, themselves also officers of Waterside Apartments, have authenticated that signature under oath. Furthermore, Mr. Brous also signed other documents which would logically complement the note. In any case, Mr. Freedman’s contention does not defeat Chase’s claim. Even if the note had been signed by Arthur Greenfield, the president of Waterside Apartments, and had been lost, the result would be the same. Waterside Apartments intended to and did enter into an obligation to pay $2.96 million to Chase.
Waterside Apartments’ alternative argument that the persons who signed the loan documents had no authority to do so requires the Court to delve more deeply into the murky history of the corporation.
Early in 1979, Tower 2450, Inc., the company which then owned the apartment building was in a Chapter X proceeding. Irvin Freedman, who was attempting to acquire the building, engaged Sage Capital Corp. (“Sage”) to locate financing. Sage, through its president Daniel Segal, submitted a loan application to Aetna Business Credit, Inc. (“Aetna”), but Aetna refused to make a loan to a corporation controlled by Freedman because of his poor credit rating, Daniel Segal then conferred with Freedman and with his brother Alan Segal, also an officer of Sage. Together they devised an arrangement whereby a newly-formed corporation would borrow the funds from Aet-na and the stock of the corporation would be held by Daniel Segal as a nominee. On April 19,1979, an application was submitted by Sage to Aetna on this basis. On the same day, Aetna approved the application on the condition that all of the stock of the borrower corporation be owned by Daniel Segal and that the stock be pledged to Aetna to secure Daniel Segal’s non-recourse guaranty of the loan.
There was another unusual transaction between Irvin Freedman and Sage on April 19, 1979. At Freedman’s request, Daniel Segal “cracked” a Chase cashier’s check for *795$375,000.00 made payable to Sage by opening a new account at Nordic American Bank with the check and then drawing two checks on the account totalling $375,000.00 —one payable to Chase for $250,000.00 and one payable to Steven Markelson and Martin Schwarzman for $125,000.00. The Court heard no satisfactory explanation for the “cracking” of the check and was left to speculate whether, or how, this occurrence tied in to the Aetna loan application.
Be that as it may, on May 25, 1979, the Aetna loan was closed. Daniel Segal executed the required stock pledge, but there apparently was a lack of communication between Daniel Segal and Irvin Freedman about the number of shares of Waterside Apartments stock which had been issued and to whom. In any event, Daniel Segal received five stock certificates in varying amounts of shares, all in his name, on June 25, 1979, under cover of a letter from Leo Greenfield, Freedman’s attorney. Daniel Segal signed the letter, which acknowledged that Segal was holding the stock as a nominee until the Aetna loan would be repaid, at which time he would endorse each of the certificates to the appropriate beneficial owner of the stock.
At the end of August, 1978, Daniel Segal attempted to vote the stock to make himself the sole director and himself and his brother Alan Segal the officers of Waterside Apartments. Segal’s right to effectuate a change in management was disputed by Leo Greenfield. Segal in fact never gave written notice to any of the officers whom he presumably was removing from office, although Segal testified that he told Sandy Brous that he was fired during a stormy meeting at the Waldorf Astoria Hotel in New York City in September, 1979. However, a few weeks later, on October 13, 1979, Brous, on behalf of Waterside Apartments, executed an agreement, also executed by Daniel Segal, which confirmed that the management of Waterside Apartments by Brous and the Greenfields would continue in effect. Furthermore, Brous and the Greenfields continued to act as officers of Waterside Apartments. After assessing all the testimony, the Court finds that Brous and the Greenfields did not receive adequate notice of the revocation of their authority. In the absence of that notification, a corporate officer continues to have the authority to bind the corporation. See Best v. Gunter, 125 Wis. 522, 104 N.W. 82 (1905). See also United States v. Summit Fidelity & Surety Co., 408 F.2d 46 (6th Cir. 1969). Notice to a third party, such as Leo Greenfield, is not effective to revoke an agent’s authority. Florida-Georgia Chemical Co. v. National Laboratories, Inc., 153 So.2d 752 (Fla. 1st DCA 1963).
Furthermore, Mr. Brous and the Greenfields continued to act on behalf of Waterside Apartments, signing contracts and remaining the authorized signatories on the checking account. This, combined with the Greenfields’ continued residence at Waterside Towers rent-free, was sufficient to establish their apparent authority.
In addition, under the terms of the agreement by which Daniel Segal held the stock of Waterside Apartments as nominee he had no authority to change the management of Waterside Apartments. Daniel Se-gal’s testimony that he was to receive full ownership of all of the stock of Waterside Apartments (rather than holding it as nominee) as the broker’s commission due Sage for arranging the Aetna loan lacks credibility, and the Court rejects it.
The third defense offered on behalf of Waterside Apartments consists of an argument that there is no consideration to support the $2.96 million note held by Chase because no new funds were given to Waterside Apartments and the loan instead was to pay a pre-existing debt. This argument also fails.
The $2.96 million loan from Chase was used to pay existing debts of R. S. Grist Company to Chase which totalled $2.96 million. Accordingly, Chase took the $2.96 million note for value, and the defense of lack of consideration is not available to Waterside Apartments. Sections 3-303(b) and 3-408, Uniform Commercial Code. See Offi*796cial Comment 5 to Section 3-3032 and Official Comment 2 to Section 3 — 408,3 Uniform Commercial Code. Furthermore, the $2.96 million loaned to R. S. Grist Company was used, at least in part, to finance the acquisition and conversion of the building. Thus the evidence shows, and the Court finds, that at least $1.8 million of the Chase loan proceeds was used to finance the acquisition of Waterside Towers and the condominium conversion, directly benefitting Waterside Apartments. Furthermore, Waterside Apartments and Daniel Segal acknowledged the obligation by executing, on October 13, 1979, an agreement which recited that $2.96 million was to be repaid out of proceeds of sales of condominium units. Although Daniel Segal denies that he knew the funds were destined for Chase, his attorney, Morris Brown, identified his (Brown’s) handwriting in a prior draft of the agreement which clearly stated that the $2.96 million was owed to Chase.4
Waterside Apartments’ plea that equity should refuse to recognize Chase’s claim against it is primarily based upon Daniel Segal’s assertion that he and Sage borrowed substantial funds from Chase which were re-loaned to Irvin Freedman and others at the insistence of a Chase officer and that these loans were not paid, thus somehow entitling Segal to prevail over Chase because of this investment. Likewise, Waterside Apartments urges that this investment should be recognized in equity to deny Chase’s claim against Waterside Apartments. However, the Court finds that the most money that Daniel Segal or Sage invested for the benefit of Waterside Apartments is approximately $83,000.00 paid for some taxes. Daniel Segal testified that a Chase officer, Michael Calandra, agreed to loan him and Sage funds but insisted they borrow extra amounts to loan to Freedman and others. According to Se-gal, Calandra, who since has been terminated by Chase, also stated that Chase would credit their accounts if Freedman and the others failed to pay the loans. Segal testified that these transactions were plausible, although not normal. That these transactions would be plausible is inconceivable to this Court, particularly from the perspective of a person such as Daniel Segal who holds himself out as a sophisticated businessman. Segal must have known that this scheme was improper for a bank officer to propose or authorize.
These loan transactions are irrelevant to the Waterside Apartments loan transaction; they are loans unrelated in any way with Waterside Apartments but involving some of the same characters as are involved with Waterside Apartments. Furthermore, Daniel Segal realized that these unrelated loan transactions really were devices to disguise the identity of the true borrowers from Chase, and he voluntarily participated with Calandra in making the loans. Accordingly, equity will not lend its aid to Daniel *797Segal or Waterside Apartments. Furthermore, the conduct of Chase officers with respect to these unrelated transactions does not detract from the validity and enforceability of the Waterside Apartments obligation to Chase nor does it change the fact that substantial sums loaned by Chase were used for the benefit of Waterside Apartments.
The Court will enter an order granting Chase’s application to amend the petition and a judgment dismissing the complaint with prejudice and in favor of Chase on its counterclaim.
. The burden is on the party challenging the authenticity of a signature, which on its face appears to be genuine, to prove conclusively that the signature is a forgery. Freeman Check Cashing Inc. v. State, 97 Misc.2d 819, 412 N.Y. S.2d 963 (Ct.Cl.1979); Virginia National Bank v. Holt, 216 Va. 500, 219 S.E.2d 881 (1975); Jax v. Jax, 73 Wis.2d 572, 243 N.W.2d 831 (1976).
. “Paragraph (b) ... adopts the generally accepted rule that the holder takes for value when he takes the instrument as security for an antecedent debt, even though there is no extension of time or other concession, and whether or. not the debt is due. The provision extends the same rule to any claim against any person; there is no requirement that the claim arise out of contract. In particular the provision is intended to apply to an instrument given in payment of or as security for the debt of a third person, even though no concession is made in return.”
. “The except clause is intended to remove the difficulties which have arisen where a note or a draft, or an indorsement of either, is given as payment or as security for a debt already owed by the party giving it, or by a third person. The provision is intended to change the result of decisions holding that where no extension of time or other concession is given by the creditor the new obligation fails for lack of legal consideration. It is intended also to mean that an instrument given for more or less than the amount of a liquidated obligation does not fail by reason of the common law rule that an obligation for a lesser liquidated amount cannot be consideration for the surrender of a greater.”
.Although Morris Brown denied that he was acting as Daniel Segal’s attorney, the other participants in the drafting process of the October 13, 1979 agreement, identified Morris Brown as Segal’s attorney. From the weight of the evidence, the Court finds that Brown acted as Daniel Segal’s attorney in the drafting of the October 13, 1979 agreement. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492807/ | ENTRY ON MOTION TO DETERMINE IF AUTOMATIC STAY IS APPLICABLE
ROBERT L. BAYT, Bankruptcy Judge.
This matter is before the Court on the Motion to Determine if Automatic Stay is Applicable to Administrative Proceeding to Terminate Contract of Appointment of Debt- or Herein a Medical Intern (“Debtor’s Motion”), filed by Gerald U. Reyes (“Debtor”) on May 30, 1997. The Trustees of Indiana University, by counsel (“University”) filed a response (“Response”) to the Debtor’s Motion on June 6, 1997. The Court, having reviewed the Debtor’s Motion and the Response, now makes the following Entry.
The Debtor filed a petition under Chapter 13 on March 21, 1997. The Debtor is currently a medical intern in the Department of Psychiatry at the Indiana University School of Medicine.
The Debtor’s position as an intern in the Department of Psychiatry is being disputed by the parties. In late April of 1997, a Dr. Stuart Kleit sent the Debtor a letter informing the Debtor that Dr. Kleit would recommend that the Debtor’s appointment as an intern be terminated. A hearing concerning the proposed termination was set for June 7, 1997.
By the instant Debtor’s Motion, the Debtor asks the Court to determine that the June 7, 1997 hearing, if held, will constitute a violation of the automatic stay. According to the Debtor, the June 7, 1997 hearing is an “administrative hearing” that, pursuant to 11 U.S.C. § 362(a)(1), may not go forward unless the University first obtains relief from the stay.
Section 362(a)(1) provides as follows:
(a) Except as provided in subsection (b) of this section, a [bankruptcy] petition ... operates as a stay, applicable to all entities, of—
(1) the commencement or continuation ... of a judicial, administrative, or other action or proceeding against the debt- or that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title.
(emphasis added)
The University argues that Section 362(a)(1) does not apply to the hearing in issue here. Having reviewed the pleadings before the Court, it is the conclusion of the Court that the proposed hearing is not the type of administrative hearing that Section 362(a)(1) was intended to regulate. The entire thrust of Section 362(a) is to stop all debt collection proceedings. Of primary importance to the Court’s decision is the fact that the University is not attempting to collect a debt. The University is simply gathering facts to enable it to determine whether the Debtor’s relationship with the University should be terminated.
The University further argues that the proposed hearing falls within the Section 362(b)(4) exception for exercises of police or regulatory power. Section 362(b)(4) provides as follows:
(b) The filing of a petition ... does not operate as a stay—
(4) ... of the commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit’s police or regulatory power.
Cf. In re Hanson, 71 B.R. 193 (Bankr.E.D.Wis.1987)(attorney disciplinary hearing brought against debtor fell within police power exception to automatic stay); In re Thomassen, 15 B.R. 907 (9th Cir. BAP 1981)(license revocation proceeding brought against debtor by Board of Medical Quality Assurance fell within police power exception to automatic stay).
The University’s argument is well taken. The policies furthered by Section 362(b)(4) are furthered here by allowing the proposed hearing to go forward. The University is *820charged with protecting the public health, and.is charged with certifying to accrediting bodies that persons such as the Debtor have met all the requirements of the University’s training program. Moreover, Indiana Code Section 20-12-1-2(4) empowers the University to dismiss, suspend, or punish students or employees who violate the University’s rules or standards of conduct. The hearings proposed to determine whether the Debtor should remain as an intern in the Department of Psychiatry, fall within the exercise of the University’s regulatory powers, as granted by Indiana Code Section 20-12-1-2(4).
IT IS, THEREFORE, ORDERED, ADJUDGED AND DECREED that the Debt- or’s Motion be, and hereby is, DENIED. The Court hereby DECLARES that the holding of the hearing currently set for June 7, 1997, will not constitute a violation of the automatic stay. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488964/ | MEMORANDUM
THOMAS M. TWARDOWSKI, Bankruptcy Judge.
This Court, on its own motion reopened the estate of Crown Oil & Wax Company of Delaware [hereinafter referred to as Crown] by Bench Order entered November 28, 1979. On June 27, 1980, plaintiff, Wex-ler, Weisman, Maurer & Forman, P.C. [hereinafter referred to as Wexler], a law firm that formerly represented the debtor during Chapter XI proceedings, has filed a complaint to recover $25,000, the balance of its fee charged in connection with that proceeding, but immediate payment of which at confirmation was waived to enable the debtor to meet the payment schedule proposed under its plan, which was later confirmed.1 Both named defendants, Crown and Farmers and Mechanics National Bank [hereinafter referred to as F & M], a creditor of Crown, filed a motion to dismiss the complaint, on which hearing was held. For reasons hereinafter given, we conclude that the complaint should be dismissed.2
The background for the reopening of the Crown estate is described fully in our separate opinion, entered in conjunction with this decision.3 The purpose for this Court’s reopening of that estate was to determine, as plaintiff and others had alleged, whether F & M’s purportedly secured claim was in fact unsecured, and if so, whether that “fact” had been intentionally concealed by F & M, and, whether the rights of any general unsecured creditors were adversely affected.
First, we conclude that because the nature of the relief sought by Wexler is beyond the scope of this Court’s purpose in reopening the Crown estate, the complaint should be dismissed.
*971Second, even if we were to consider plaintiff’s complaint as an independent application to reopen the estate under Rule 515 of the Rules of Bankruptcy Procedure, we conclude that good cause does not exist to reopen the Crown estate for the purpose of collection of the remaining unpaid portion of Wexler’s fee.4
Wexler’s recourse is the appropriate action in another court of competent jurisdiction.
. Notes of Testimony at 19 (November 22, 1976). The plan was confirmed by order dated November 30, 1976. The plan has since been consummated.
. This Memorandum constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. In re Crown Oil & Wax Company of Delaware, - B.R. -, Case No. 74-1099 (reopened) (E.D.Pa. February 12, 1981).
. See Order dated April 13, 1977. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488965/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
JON J. CHINEN, Bankruptcy Judge.
On December 11, 1980, Marcus H. Asch, hereafter “Asch”, filed his Motion to Amend Findings of Fact and Conclusions of Law and To Amend the Judgment filed December 3, 1980, or In the Alternative, Motion for New Trial. The matter was heard before the undersigned Judge on January 5, 1981. Philip D. Bogetto, Esq. appeared on behalf of Asch, and Jerrold Y. Chun, Esq. appeared on behalf of Airport Associates.
In his memorandum, Asch contends that because Airport Associates has removed trade fixtures and remodeled the leased premises, said premises can no longer be used as an air gunnery range, the original purpose for which it was leased. Consequently, Asch contends that there was a surrender of the leased premises by the tenant, Hawaii Air-Gunnery, Inc., and an acceptance of such surrender by the landlord, Airport Associates.
On the other hand, Airport Associates contends that, under the terms of the Lease and under the law, Airport Associates as the landlord, is under an obligation to mitigate the damages of the tenant, therefore, when it removed the trade fixtures and remodeled the premises to enable it to sublet it to a new tenant, it was merely fulfilling its obligations under the law.
Based upon the memoranda and records filed herein and arguments of counsel, the Court hereby makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
1. On December 1, 1976, Airport Associates and Hawaii Air-Gunnery, Inc., hereafter “Air-Gunnery”, entered into five-year lease commencing on January 1,1977. Performance of said lease on the part of Air-Gunnery was guaranteed by Asch.
*9812.A pertinent provision of the lease provided as follows:
DEFAULT AND RE-ENTRY
If there shall be an event of default, Owner shall give notice of such event of default to Tenant, and if Tenant shall fail to cure such event of default within ten (10) days after the date of receipt of such notice Owner may at its option terminate this lease and re-enter and take possession of Premises using all necessary force to do so; provided, however, that if the nature of such default other than for non-payment of rent is such that the same cannot reasonably be cured within such ten-day period, Tenant shall not be deemed to be in default if Tenant shall within such period commence such cure and thereafter diligently prosecute the same to completion. Notwithstanding such retaking of possession by Owner, Tenant’s liability for the rent provided herein shall not be extinguished for the balance of the term of this lease. Upon such re-entry, Owner may elect either (i) to terminate this lease, in which event Tenant shall immediately pay to Owner a sum equal to that by which the then cash value of the total rent reserved under this lease for the balance of the lease term exceeds the then reasonable rental value of Premises for the balance of the lease term; or (ii) without terminating this lease, to relet all or any part of Premises as the agent of and for the account of Tenant upon such terms and conditions as Owner may deem advisable, in which event the rents received on such reletting shall be applied first to the expenses of reletting and collection, including necessary renovation and alteration of Premises, reasonable attorney’s fees and real estate commissions paid, and thereafter to payment of all sums due or to become due Owner hereunder, and if a sufficient sum shall not be thus realized to pay such sums and other charges, Tenant shall pay Owner any deficiency monthly, and Owner may bring an action therefor as such monthly deficiency shall arise. (Emphasis added).
3. By letter dated September 13, 1979, Air-Gunnery informed Airport Associates that it was abandoning the premises stating the following:
Effective with this notice, we are hereby returning to the Airport Center our space. We expect you to use your best efforts to find a tenant for the space.
******
The furnishings that remain on the premises can be moved at any time, if a new tenant has no use for them, or we will accept any reasonable offer for them. (Emphasis added.)
4. This letter emphasizes two important points: First, Air-Gunnery informed Airport Associates that Airport Associates was under a duty to mitigate da.nages by finding a new tenant; second, Air-Gunnery recognized that a new tenant might not need the existing furnishings since the new tenant might not be engaged in the air gunnery range business.
5. On September 28,1979, Airport Associates filed a complaint with this court seeking relief with respect to Air-Gunnery’s abandonment of the premises. Said complaint requested relief including September 1979 rent and other rent that may accrue after September 1979. The request for relief stated that Airport Associates did not accept surrender of the premises; instead, it is clear that Airport Associates communicated to Air-Gunnery its intent to hold Air-Gunnery responsible for future rent although Air-Gunnery had abandoned the premises.
6. Air-Gunnery was in the business of running an air gunnery range and had arranged its premises as such. Due to its nature, improvements for an air gunnery range are not conducive to other businesses. In order to relet the premises and mitigate Air-Gunnery’s damages as requested by Air-Gunnery itself, Airport Associates was compelled to modify the premises so as to facilitate obtaining a new tenant.
7. Under the terms of the lease, Air-Gunnery and Asch agreed that, upon default of performance by Air-Gunnery, Air*982port Associates could relet all or any portion of the premises and renovate or alter the premises to enable it to relet the premises at the expense of Air-Gunnery. As was demonstrated at the trial on this matter, Airport Associates tried, albeit unsuccessfully, to relet the premises to Rainbow Wallets & PSI World, neither of which were in the air gunnery range business. In November 1980, after the trial, Air-Gunnery was successful in reletting a portion of the premises to DFI Financial, Inc. which also is not in the air gunnery business. It was necessary for Airport Associates to remodel the premises in order to relet the premises to DFI Financial, Inc. and mitigate damages.
8. These Findings of Fact, insofar as they are Conclusions of Law, are incorporated by reference in the Conclusions of Law as hereafter stated.
CONCLUSIONS OF LAW
1. If a tenant completely abandons leased premises before the expiration of the term, the landlord may elect to pursue certain courses: (1) he may at once re-enter and terminate the lease on the theory of a forfeiture or of an acceptance of an offer to surrender, and recover rent due up to the time of abandonment; (2) he may suffer the premises to remain vacant and sue on the contract for the entire rent; (3) he may re-enter to keep the premises in repair or (4) he may relet the premises. 49 Am.Jur.2d Landlord and Tenant § 1094. If the landlord re-enters to relet them, whether the re-entry and reletting constitutes an acceptance of the abandonment, thus constituting a surrender, depends upon the circumstances and the intent of the parties. 49 Am.Jur.2d Landlord and Tenant § 1094.
2. The burden of proving a surrender is upon the party alleging it. Thus, where a tenant relies on an alleged surrender to relieve him of liability for subsequently accruing rents, the burden is upon him to prove that the landlord intended to accept the abandonment as a surrender. Yee v. Okamoto, 45 Hawaii 445, 370 P.2d 463 (1962).
3. In determining whether or not the landlord intended to accept the abandonment as a surrender, the trier of fact must take into account whether or not the landlord was under a duty to relet, i. e., a duty to mitigate, especially if there is a provision in the lease agreement regarding reletting the premises in the event of default by the Tenant. 49 Am.Jur.2d Landlord and Tenant § 1100. In the instant case: (1) under Hawaii law it is well known that Airport Associates was under a duty to mitigate Air-Gunnery’s damages; (2) Air-Gunnery through its letter to Airport Associates dated September 13, 1979, informed Airport Associates that Airport Associates was under a duty to mitigate; and (3) the lease agreement provided for the reletting of the premises and the application of such rents to tenant’s account. Under these circumstances, it is clear that Air-Gunnery has not met its burden of proving that Airport Associates intended to release Air-Gunnery of any further liability.
4. Air-Gunnery has, however, raised the issue of Airport Associates modifying the subject premises from an air gunnery range to space more conducive to regular business offices. Under Air-Gunnery’s analysis, Airport Associates is under a duty to relet (see Hawaii Air-Gunnery’s Sept. 13, 1979 letter) but if Airport Associates relets to someone who requires that the premises be remodeled from an air gunnery range, then Air-Gunnery is not responsible for any future rent since Airport Associates’ actions constitute an acceptance of the surrender of the premises.
5. Air-Gunnery’s position is contrary to the law. Where a landlord re-enters abandoned premises in order to alter or remodel them for a prospective tenant, whose rental payment will mitigate damages, the possession exercised by the landlord, without more, does not constitute an acceptance of the abandoned premises; the abandoning tenant is still responsible for the rent. Ross v. Smigelski, 42 Wis.2d 185, 166 N.W.2d 243 (1969).
6. In Ross v. Smigelski, supra, the tenant was an osteopathic doctor whose lease ran until March 1, 1972. In November, *9831966, he removed his medical practice from the premises but continued his rental payments through March 1967. During January and February of 1967, the doctor attempted to sublet his office but without success.
7. The rent for April, May and June of 1967 was not paid. On July 5, 1967, the landlord commenced an action against the doctor to recover the unpaid rent. On July 24, 1967, the doctor returned his key to the landlord.
8. On July 27, 1967, the landlord informed the doctor that he intended to lease the abandoned premises to a tenant named Caturia, but that Caturia would not take over the premises unless certain alterations were made to the premises. The purpose of these alterations was to change the doctors’ office into a sporting goods store. The remodeling was completed and the lease with the Caturia sporting goods store commenced on September 1, 1967.
9. In his suit, the landlord sought to recover as damages, among other items, rent from April through August, 1967. The trial court awarded the landlord rent from April through August 1967. Although the doctor appealed on several grounds, this ruling raised the following issue:
Where premises have been abandoned by the lessee, may the lessor recover as damages rental accruing when the premises are being remodeled?
The doctor contended that the remodeling of the leased portion of the building constituted such control over the premises as to amount to a retaking of exclusive possession as a matter of law. The doctor argued that remodeling terminates an abandoned lease from the moment it begins. The court rejected the doctor’s argument and stated the following:
When a landlord re-enters abandoned premises in order to alter or remodel those premises for a prospective tenant (whose rental payments will mitigate damages), the possession exercised by the landlords, without more, does not constitute an acceptance of the abandoned premises. The abandoning tenant is still responsible for the rent.
Id. at 166 N.W.2d 248.
10. In the instant case, Airport Associates did change the configuration, or the form and shape, of the leased premises when it remodeled the premises to sublet a portion to DFI Financial, Inc. However, such remodeling was necessary to relet the premises and mitigate damages. Under the lease provisions, Air-Gunnery and Asch had agreed that upon default of Air-Gunnery, Airport Associates could remodel the premises to relet all or any portion thereof in order to mitigate damages.
11. In altering the premises and subletting a portion thereof, even if the premises could no longer be used for an air gunnery range, Airport Associates was merely complying with the terms of the lease executed by Air-Gunnery and guaranteed by Asch. Thus, Airport Associates’ conduct is not sufficient to find an acceptance of the surrender of the premises.
12. Since no new matter has been offered by Asch, the Motion to Amend the Findings of Fact and Conclusions of Law is hereby denied. Furthermore, the Motion for New Trial is also denied.
An Order will be signed upon presentment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488966/ | MEMORANDUM
RUSSELL H. HIPPE, Jr., Bankruptcy Judge.
This matter is before the court upon a complaint filed by the trustee seeking to sell a certain tract of real property free and clear of all liens pursuant to 11 U.S.C. § 363(f).
On August 25, 1975, the debtors and defendant Leonard Melton entered into an “Installment Contract of Sale” providing for the sale to the debtors of a 2.5-acre tract of real property improved with a modest residence. The debtors made a down payment of $300 and in the contract agreed to pay Melton in installments of $150 per month the purchase price of $14,950 plus interest thereon at the rate of nine percent per annum. Record title to the property remained in Melton.1 According to the contract, Melton was to convey title to the tract to the debtors by a general warranty deed only after having received the full deferred purchase price. The “Installment Contract of Sale” was not recorded.
The trustee asserts that Melton retained legal title to the tract merely as security for payment of the purchase price and that his status with respect to the property thus is comparable to that of a seller of personal property who retains title under an installment sale contract. The trustee, asserting his rights under § 544(a), seeks to prevail over Melton by virtue of the latter’s having failed to record the installment sale contract.
It is true that the Uniform Commercial Code substantially curtails the significance of title in determining the rights of the parties relative to a sale of goods. E. g., In re Overbrook & Barson’s, Inc., U.C.C.Rep. Serv. 546, 552 (E.D.Pa.1968) (B.J.); William F. Wilke, Inc. v. Cummins Diesel Engines, Inc., 252 Md. 611, 250 A.2d 886, 6 U.C.C. Rep.Serv. 45 (1969); Sheekin v. Giant Food, Inc., 20 Md.App. 611, 318 A.2d 874, 14 U.C. C.Rep.Serv. 892 (Ct.Spec.App.1974), aff’d sub nom. Giant Food, Inc. v. Washington Coca-Cola Bottling Co., 273 Md. 592, 332 A.2d 1 (1975). Article 9 of the Uniform Commercial Code, however, does not apply to the creation of an interest in or a lien on real property. Tenn.Code Ann. § 47-9-104(j) (1979); Official Comment 4, Tenn. Code Ann. § 47-9-102(3). With real property, title remains paramount. See Official Comment 4, Tenn.Code Ann. § 47-9-102(3).
An unreported decision by the United States District Court for the Western District of Tennessee, Hardeman County Savings Bank v. Kennedy (In re Climer), No. 77-2500 (W.D.Tenn., Sept. 22, 1977), which has been affirmed by the court of appeals in another unreported opinion, No. 77-1681 (6th Cir., Dec. 17, 1979), cert. denied, 445 U.S. 964, 100 S.Ct. 1654, 64 L.Ed.2d 240 (1980), is dispositive of the issue before the court. In Kennedy the bankrupts had purchased real property pursuant to a similar installment land sale contract. The bankrupts’ trustee resisted the seller’s claim to the unpaid balance due under the contract on the ground that the contract was ineffective against a trustee in bankruptcy because it had not been recorded. The bankruptcy judge held at 3 Bankr.Ct.Dec. 631 that the creditor’s rights were subordinate to those of the trustee’s. The district court reversed the bankruptcy judge’s holding on appeal in an unreported decision, the pertinent paragraphs of which follow.
The Bankruptcy Judge reasoned that the installment land sale contract was in actuality a security device and that appellant ... occupied a mortgagee status thereunder, citing old Tennessee decisions, Tharpe v. Dunlap, 51 Tenn. 674 (1871); Hines v. Perkins, 49 Tenn. 395 (1871); and Anthony v. Smith, 28 Tenn. 508 (1848). The Bankruptcy Judge fur*16ther pointed to the explicit language [of] the contract manifesting the parties’ intention that the contract operate as a security agreement.
The Bankruptcy Judge also reasoned that due to the operation of TCA §§ 64-2401 and 64-2601 the installment land sale contract was ineffective as a security agreement against the appellee trustee in bankruptcy. TCA § 64-2601 states that an instrument capable of being registered under TCA § 64-2401 (including both agreements to convey real property and all mortgages and trust deeds) is always effective as between the immediate parties. If unrecorded, however, the instrument has no effect as to persons without actual notice of it. Since § 70(c) of the Bankruptcy Act [11 USC § 110(c)] gives the trustee the status of a hypothetical judicial lien creditor without notice upon filing of the petition, TCA § 64 — 2601 was deemed to protect the trustee against the assertion of an unrecorded security device, and thus the trustee would prevail over [the appellant’s] claim as a secured creditor.
The claimant [appellant] on the other hand relies upon TCA § 64-2603 in that it refers to the effect of failure of registration of such an instrument “as to creditors of, or bona fide purchasers from the makers without notice,” (emphasis added) in conjunction with the clause in TCA § 64-2601 “unless otherwise expressly provided.” [Appellant] argues that since the trustee is not in a position as a creditor or bona fide purchaser of the maker of a conveyance of title under Tennessee law, he cannot prevail; further, that the trustee cannot assume a position of greater standing then the bankrupt who is bound by the contract between the parties. Appellant’s position is indeed sustained by Tennessee Courts. Wright v. Black, 159 Tenn. 254 [17 S.W.2d 917] (1929); Bryant v. Bank of Charleston, 107 Tenn. 560, 564 [64 S.W. 895] (1901); Leech v. Hillsman, 76 Tenn. 747, 750, 751 (1882); and Harris v. Williford, 179 Tenn. 299 (1942), 79 S.W.2d 582 [165 S.W.2d 582],
The rationale behind the distinction in treatment of bona fide purchasers from the maker and the grantee is that the burden is cast upon the latter to effect a recordation to protect his rights and those standing in his position subsequently. Also, in this type of case involving an unrecorded purchase installment contract, anyone seeking information as to title may check to discover the record titleholder; such interested person is put on notice as to the legal titleholder’s interest —[appellant]—in this instance. No bona fide purchaser from or creditor of the [bankrupts] should have been surprised to know that [appellant] — of record — maintained an interest in the property.
To assert or protect the buyer’s interest, suit could be brought to realize as a matter of equity the buyer’s rights, if any, in the property. The forfeiture clause in the contract would necessarily have to withstand judicial scrutiny before it could be enforced by the vendor, which here does not attempt to eliminate any equity the [bankrupts] may have or have had at the time of bankruptcy. Therefore, even if [appellant], the vendor or maker, stands in a position as mortgagee, it retained legal title, not merely an equitable title, and may enjoy the benefits of Tennessee law as to its legal status in the absence of registration of the installment contract. See Ferguson v. Blood, 152 F. 98 (9th Cir., 1907); Graham v. McCampbell, 19 Tenn. 52 (1838); and Hines v. Perkins, supra.
Hardeman County Savings Bank v. Kennedy, supra, at 3-5 (footnotes omitted).
It is clear under the district court’s holding in Kennedy, which was affirmed by the Sixth Circuit, that in Tennessee the rights of a seller under an unrecorded installment land sale contract are superior to those of the buyer’s trustee in bankruptcy. It is the court’s opinion, therefore, that Melton’s rights as record owner of the tract herein at issue are superior to the trustee’s.
. Actually title remained in Melton and his wife (see Exhibit 2), but she acknowledged that he had full authority to dispose of her interest. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488969/ | ORDER QUASHING SERVICE AND DIRECTING ISSUANCE OF ALIAS SUMMONS
THOMAS C. BRITTON, Bankruptcy Judge.
These adversary complaints seek to avoid liens on property of the debtor. Neither *45defendant answered and plaintiff seeks entry of a default judgment in each of the cases. The matters were set for trial on January 6, 1981.
The certificates of service filed in each of the cases indicate that service was made by certified mail on the respective defendant corporations. (C. P. No. 3 in each file). This is not effective service under the Bankruptcy Rules which require that service by mail on a corporation be made by mailing a copy of the summons, complaint and notice by regular mail “. .. directed to the attention of an officer, a managing or general agent, .. . Bankruptcy Rule 704(c)(3). Service is, therefore, quashed without prejudice to the plaintiff’s obtaining an alias summons in each of the cases from the Clerk of the Court which will, of course, set a new trial and answer date. Plaintiff may then attempt service in accordance with the rules. Upon proof of proper service, if the defendant fails to answer within the date specified by the summons, then default judgments shall be entered in favor of the plaintiff in each of these proceedings. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488970/ | OPINION ON COMPLAINT TO DETERMINE DISCHARGEABILITY OF DEBT
RODNEY R. STEELE, Bankruptcy Judge.
The Plaintiff on December 9,1980, filed a Complaint to have this Court determine the dischargeability of debts owed by this Debt- or and totalling at the time of bankruptcy $4,328.40.
It is alleged in the Complaint that the Plaintiff obtained two loans from the Credit Union, one on March 7, 1980, when she executed a promissory note of that date, payable to the Plaintiff for the sum of $3,164.40. She also obtained a loan of money on September 8, 1980, in the amount of $2,000.00.
The Complaint alleges that these monies were obtained by false pretense or false representation or by actual fraud, in this that the financial statements (Exhibits 1 and 2 for Plaintiff) executed by the Defendant in connection with her application for the loans of March 7, and September 8, 1980, were false, were known to be false, and were made to induce this Plaintiff to loan the money and that the Plaintiff did in fact loan the money based upon the false statements. It is further alleged that the last loan made on September 8, 1980, but actually paid out to the Defendant on September 29, 1980, was actually fraudulent in that the Defendant did on the very next day, that is, September 30, 1980, file her petition in straight bankruptcy, this very proceeding in bankruptcy.
By a Summons and Notice of Trial entered on December 29, 1980, the Complaint was set to be heard on January 14,1981, at Dothan, Alabama. Notice was supplied to the Debtor and her attorney, to the Trustee, and to the Plaintiff’s attorney.
At the appointed time and place the Complaint was called in accordance with the notice. Present was the attorney for the Plaintiff and representatives of the Plaintiff, the Defendant and her attorney.
Testimony was taken from a representative of the Plaintiff, and from the Defendant.
The facts may be summarized as follows. The Defendant in November, 1978, returned from the Canal Zone where she had been employed by a branch of the military. She established residence in Dale County on or near Fort Rucker, Alabama, and went to work for a Mrs. Clevinger who owned the uniform shop concession in the Army PX on Fort Rucker. At the same time she went to the Plaintiff’s local office to establish credit and borrowed money in November of 1978 in the amount of $500.00 to establish this credit.
In January or February of 1980, the Defendant had decided to buy Mrs. Clevinger’s uniform shop and to assume the concessionaire’s agreement with the Army and Air Force Exchange Service in the PX at Fort Rucker. Mrs. Clevinger had agreed to sell the uniform shop and the Air Force Exchange had agreed to let Defendant assume the concession, the commission on which to the Exchange Service was 10.5 percent of sales.
The Defendant went to the Plaintiff and filled out an application for loan in which she was required to give a financial statement. She did so on about March 7, 1980, and listed only four debts, Commercial Credit Corporation, the Credit Union, General Electric Credit Corporation, and Real Estate Financing.
On that date she was loaned $2,650.00 with which to purchase Mrs. Clevinger’s interest and begin her business.
At that time, from the testimony given and from the allegations of the Complaint she had one or two debts which she did owe at that time which she did not list in the financial statement, namely a debt to Dan-ley Furniture Company incurred in September 1979 for $531.46 and a debt to Leon’s of Dothan made in January 1979 for $507.00.
The money was used by Defendant for the purpose of buying Mrs. Clevinger’s interest and assuming the concession.
*69Later, in July or August of 1980, Defendant’s concession business was not doing well and she concluded that she needed to emphasize the rental uniform business rather than the sale of uniforms. She got the approval of the Exchange Service, and went back to Plaintiff to arrange for an additional loan to buy rental uniforms. On September 8, 1980, she filled out another loan application and listed General Electric Credit Corporation, the Federal Credit Union, Commercial Credit Corporation and Real Estate Financing as debts owed at that time.
She received a loan of $2,000.00 and a check was drawn payable to her and delivered to her at that time in that amount.
It appears however from the listing in her schedule of debts in bankruptcy that by that time she had incurred debts in addition to the personal ones which she owed in March, (the additional debts incurred between March and September of 1980) to William Iselin and Company in April of 1980 for $636.95, to the East Emblem and Insignia Company in April of 1980 for $1,647.92, to Super Trooper, Inc. in April 1980 for $1,747.95, to Gulf Coast Area Exchange in August of 1980 for $1,051.19, to Veda Clevinger in August 1980 for $700.00, to Davis Clothing Company in August of 1980 for $1,593.50, and to Airborne Freight in July 1980 for $455.00.
These Debts she did not list on her application for the loan made on September 8, 1980.
She called the Plaintiff’s office on September 29, 1980, or a day or two prior to that time, and advised the loan officer Mr. Blair that one of the collecting banks had advised her that the check was improperly endorsed and although it was mailed back to her for proper endorsement, it had not been received. It had apparently been lost in the mails.
She requested the issuance of another check in the amount of $2,000.00. Blair stopped payment on the first check and issued another check in the amount of $2,000.00 which was delivered to Mrs. Call at Plaintiff’s office on September 29, 1980. On the same day she endorsed the check and used the funds to pay suppliers, including the two major suppliers who had provided rental uniforms.
Mrs. Call further testified that in the interim between September 8, 1980, and September 29, 1980, the price of the uniforms which she ordered for rental had gone up and that the PX had made demand upon her for immediate payment of its commission, in the amount of 10.5 percent of her sales, which was in arrears for the month of September.
She did not have these funds to pay the commission and to pay for the uniforms which had been ordered.
On September 22, 1980, she had visited her attorney Mr. Reese to discuss her financial condition. She testified at the hearing on January 14, that she had visited Mr. Reese late in the afternoon on September 29, after she had received the check for $2,000.00 from Plaintiff. But the evidence supports a finding that she visited him on September 22, 1980, and that she returned on September 29, 1980, to his office to sign a petition in bankruptcy.
The petition in bankruptcy was filed on September 30, 1980, at Montgomery.
The Complaint alleges that the Plaintiff made a materially false financial statement on March 7, 1980, and again on September 8, 1980, when she failed to list ten separate debts totalling $9,669.97. Mr. Blair for the Plaintiff testified that had he known of these debts he would not have made these loans.
We conclude that the Plaintiff has not proved that the Defendant made a materially false statement in writing either on March 7, or September 8, 1980, which induced Plaintiff to lend money to the Defendant on those two dates. But the actions of the Defendant on September 29, 1980, in inducing the Plaintiff to issue a new check in the amount of $2,000.00, when she knew that she was going into bankruptcy, is a false pretense or false representation or actual fraud which induced the loss suffered by this Plaintiff, and that *70$2,000.00 ought not to be discharged in bankruptcy.
It does not appear that the written financial statement made on March 7, 1980, was materially false. Eight of the ten debts which are alleged in the Complaint to have been omitted from the statement of March 7, 1980, are: according to that pleading debts which were made in April of 1980 or thereafter. They would not have then been debts which could have been listed on the March 7, statement.
But we are not satisfied that the Credit Union made any estimation or determination of the Defendant’s financial condition when they loaned money on both occasions. Although there are some guidelines used by the Credit Union in determining when they will loan money, it does not appear from Mr. Blair’s testimony that such guidelines were ever used in deciding whether to lend the sums of money which were loaned on March 7, and September 8, 1980. See Consolidated Plan of Connecticut Inc. v. Cross, 4 Conn.Cir. 641, 239 A.2d 51 (1967). Cf. Swint v. Robins Federal Credit Union, CA 5, 1969, 415 F.2d 179.
Moreover it appears that the loans made on these days were made as personal loans, and that although the Plaintiff knew that Defendant was operating a business and that the money was for a business purpose, they took no security, and apparently relied entirely upon the personal credit-worthiness of this Defendant.
But when Mrs. Call after, having visited her attorney on September 22, 1980, and settled upon the filing of a bankruptcy petition, called the Plaintiff on September 29, and induced the Plaintiff to issue a new check in the amount of $2,000.00, to replace that check issued in that amount on September 8, 1980, and knew at that time that she would be unable to repay that debt and would on that day or the next day file a bankruptcy petition, we think it is clearly an artifice, trick or device which had the purpose and effect of cheating the Plaintiff out of $2,000.00. We do not think it significant that she did not think of her actions in those terms.
Such behavior has in several instances been denominated false pretense or false representation or actual fraud. Thus the “symbolic” use of credit cards on the eve of bankruptcy is a fraud on the card issuer. In re Black, D.C., 373 F.Supp. 105, 1974; In re Boydston, 5th Cir., 520 F.2d 1098, 1975. A misrepresentation of an intention to repay may establish the requisite intent to deceive. Matter of Ratajczak, Bkrtcy., 5 B.R. 583, 586; In re Schlickman, Bkrtcy., 6 B.R. 281, 282.
An appropriate Order will enter. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488972/ | MEMORANDUM OPINION
LLOYD D. GEORGE, Bankruptcy Judge.
The Trustee in the above-entitled bankruptcy proceeding has objected to the claim of First Wisconsin National Bank of Milwaukee, insofar as it would attribute a priority status to the amount due this creditor. In response, the Bank has set forth an ancient basis for its alleged priority position, claiming a common law right of distress as a commercial landlord, which it asserts would give it a position superior to that of the general creditors herein. Despite an absence of Nevada case law directly on point, the Court finds that the general proposition of First Wisconsin National Bank is correct and will, therefore, deny the objection of the Trustee.
As its starting point, the court notes that a landlord has at his disposal two possible methods for obtaining a priority position, as to three-months’ rent, under the pre-Octo-ber 1, 1979 Bankruptcy Act. Both mechanisms have their initial foundation in Section 64(a)(5) of the Act, which reads as follows:
“The debts to have priority, in advance of the payment of dividends to creditors, and to be paid in full out of bankrupt estates, and the order of payment shall be .... (5) • • • rent owing to a landlord [1] who is entitled to priority by applicable State law or [2] who is entitled to priority by paragraph (2) of subdivision c of Section 67 of this Act; Provided, however, That such priority for rent to a landlord shall be restricted to the rent which is legally due and owing for the actual use and occupancy of the premises affected, and which accrued within three months before the date of bankruptcy.”
(Emphasis original). Section 67(c)(2) of the Act gives priority to those claims underlying liens which are made invalid against a trustee in bankruptcy under Section 67(c)(1). Subsection (C) of the latter section provides, in turn, that
“[t]he following liens shall be invalid against the trustee: ... (C) every statutory lien for rent and every lien of distress for rent, whether statutory or not. A right of distress for rent which creates a security interest in property shall be deemed a lien for the purposes of this subdivision c.”
Some considerable debate arose at the time Section 67(c)(1)(C) was last amended *81(1966) as to the meaning of the final sentence therein. Marsh, “Triumph or Tragedy?: The Bankruptcy Act Amendments of 1966,” 42 Wash.L.Rev. 681, 723-27 (1967). The interjection of the U.C.C. Article Nine concept of the “security interest” created substantial ambiguity as to what would be necessary for a right of distress to be endowed with the right of priority which flows from Section 67(c)(2). For the purpose of this proceeding, however, the Court will assume that, under applicable state law, the right of distress must give some sort of immediate property interest, as opposed to a simple right by which a property interest can eventually be obtained, before Sections 67(c)(1)(C) and 67(c)(2) may be utilized by a landlord seeking a priority in bankruptcy.
At common law, and under statutes paralleling the common law, the right of distress created no immediate interest against the personal property of a tenant. See In re Uni-Lab, Inc., 282 F.2d 123 (3d Cir. 1960); Hay v. Patrick, 79 F.2d 407 (3d Cir. 1935); Shalet v. Klauder, 34 F.2d 594 (3d Cir. 1929); In re West Side Paper Co., 162 F. 110 (3d Cir. 1908). Rather, the landlord’s right of distress remained inchoate until actual distraint of the personal property in question occurred. Since First Wisconsin National Bank does not claim to have warranted the seizure of the Bankrupt’s personal property, the court must find that the Section 67(c)(2) avenue to priority is blocked as to the Bank’s claim.
Nevertheless, a very good argument can be made that Nevada law would still provide the Bank with a priority, even though it possesses only an inchoate distress right. See In re Goldstein, 34 F.Supp. 876 (E.D.Pa.1940). This could be accomplished not through reference to the right of distress, itself, but by an application of the early 18th Century English statute of 8 Anne, ch. 14, which, in antedating the Declaration of American Independence, has become a part of the common law of Nevada. See Evans v. Cook, 11 Nev. 69, 74-75 (1876) (applying the statute of 9 Anne, ch. 14, to void agreements for the payment of gaming debts); Ex Parte Blanchard, 9 Nev. 101, 105 (1874) (also, noting, however, that pre-1776 English statutes must be “applicable to our situation” for adoption into Nevada’s common law). Section 1 of this statute provides:
“For the more easy and effectual Recovery of Rents reserved on Leases for Life or Lives, Term of Years, at Will, or otherwise; Be it enacted by the Queen’s most excellent Majesty, by and with the Advice and Consent of the Lords Spiritual and Temporal, and Commons in Parliament assembled, and by the Authority of the same, That from and after the first Day of May, which shall be in the Year of our Lord one thousand and seven hundred and ten, no Goods or Chattels whatsoever, lying or being in or upon any Messuage, Lands, or Tenements, which are or shall be leased for Life or Lives, Term of Years, at Will, or otherwise, shall be liable to be taken by Virtue of any Execution on any Pretence whatsoever, unless the Party at whose Suit the said Execution is sued out, shall before the Removal of such Goods from off the said Premises, by Virtue of such Execution or Extent, pay to the Landlord of the said Premises, or his Bailiff, all such Sum or Sums of Money as are or shall be due for Rent for the said Premises at the Time of the taking such Goods or Chattels by Virtue of such Execution: Provided the said Arrears of Rent do not amount to more than one Year’s Rent, and in case the said Arrears shall exceed one Year’s Rent, then the said Party, at whose Suit such Execution is sued out, paying the said Landlord, or his Bailiff, one Year’s Rent, may proceed to execute his Judgment as he might have done before the making of this Act; and the Sheriff or other Officer is hereby impow-ered and required to levy and pay to the Plaintiff as well the Money so paid for Rent, as the Execution-Money.”
2 Alexander’s British Statutes 921 (Coe ed. 1912), cited in Groh v. Kim, 263 Md. 140, 282 A.2d 461, 462 (1971).
*82On its face, this statute would seem to provide a plain preference or priority to landlords over executing general creditors, in conjunction with their right of distress, even where the latter right remains in its inchoate form. See Groh v. Kim, supra (holding such to be the case, but limiting its effect to creditors executing after unpaid rent has accrued). “It ... appears throughout the judicial history of bankruptcy statutes, that a bankruptcy proceeding has been variously termed ‘a statutory execution,’ ‘an equitable execution,’ ‘the equivalent of an execution,’ ‘in effect an attachment and injunction,’ and has been uniformly regarded, in essence, though not in form, an execution which draws to itself for enforcement, by reason of section 64b, cl. 5, of the Bankruptcy Act, such priorities as are accorded landlords in the distribution of proceeds of execution sales by the law of the state in which the bankruptcy proceeding is being carried on. Bank v. Sherman, 101 U.S. 403, 25 L.Ed. 866; Mueller v. Nugent, 184 U.S. 1, 22 S.Ct. 269, 46 L.Ed. 405.” Rosenblum v. Uber, 256 F. 584, 594 (3d Cir. 1919). See also In re Goldstein, supra; In re Wall, 60 F.2d 573 (E.D.Miss.1932).
In contradiction to the use made by First Wisconsin National Bank of the common law distress right (and, though not specifically mentioned by either side, of the statute of 8 Anne, ch. 14), the Trustee maintains that such rights were replaced by the Nevada Landlord Lien Act, Nev.Rev.Stat. 108.510, et seq., which has since been declared unconstitutional by the United States District Court for the District of Nevada, see Adams v. Joseph F. Sansom Investment Company, 376 F.Supp. 61 (D.Nev.1974), under the Fuentes and Snia-dach doctrines. See Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972); Sniadach v. Family Finance Corp., 395 U.S. 337 (1969).
Upon reading the Fuentes, Sniadach, and Adams cases, however, the Court is convinced that the Trustee’s constitutionality concerns are misplaced with respect to the rights of First Wisconsin National Bank under the statute of 8 Anne, ch. 14. This latter “common law” legislation has little to do with the process by which a tenant is deprived of his personal property. Ostensibly, an executing creditor would be expected to take his debtor’s property through a constitutional means. 8 Anne, ch. 14, simply states that such an executing creditor must pay off accrued rents, up to one year’s worth, on the real property whereon execution property is located, prior to his being able to retain any of the proceeds of the said collection procedure.
In a sense, the statute of 8 Anne, ch. 14, has little direct connection with the common law right of distress or its statutory counterparts, other than the fact that its conceptual roots may well be buried in that ancient feudal right. It creates a priority in proceeds, but not an interest in property or a right to seize property. In practical fact, it constitutes little more than an additional cost of execution to general creditors. Hence, even assuming that the common law right of distress might suffer from constitutional deficiencies (a questionable proposition due to the self-help nature of the remedy, see 2 W. Blackstone, Commentaries on the Laws of England 1497-1508 (W. Jones ed. 1916) (but note that actual distraint was usually accomplished by way of a warrant issued to a bailiff or sheriff)), the statute of 8 Anne, ch. 14, would remain untouched by such difficulties.
A second point implicitly raised by the Trustee is, essentially, that the ancient right of distress is no longer “applicable to our situation” today. The same might be said of the statute of 8 Anne, ch. 14. To be sure, both rules have their origins in feudal landholding patterns and customs, which have steadily become more alien to modern commercial landlord-tenant realities. See 2 W. Blackstone, supra at 1497 n. 7; Smith v. Wheeler, 4 Okl. 138, 44 P. 203 (1896). Nevertheless, this Court, as a federal tribunal, is extremely reluctant to ignore the common law of the state in which it sits, without an obvious directive to do so from that state’s high court.
Furthermore, the Court does not believe that the adoption of either the previ*83ously-mentioned landlord lien legislation, Nev.Rev.Stat. 108.510, et seq., (now repealed), or the newer Nev.Rev.Stat. 118A would have any restrictive effect upon the use of the statute of 8 Anne, ch. 14, in the present case. Both laws were limited in their scope, by the Nevada Legislature, to the creation of property interests in landlords as against the chattels of their tenants. Neither speaks in terms of execution priorities. Moreover, the landlord lien act is no longer in effect, leaving the courts to rely upon its successor, Nev.Rev.Stat. 118A, or upon the common law, for guidance in such matters.
Although Nev.Rev.Stat. 118A.520(2) specifically abolishes distraint, its provisions are limited to leaseholds in dwelling units and their premises. Nev.Rev.Stat. 118A.180(1) (1977) (the earlier Nevada Landlord Lien Act also applied only to dwellings). Here we are admittedly dealing with a lease of commercial property. The equitable factors which may have warranted the Nevada Legislature in abolishing distraint in residential settings is thus lost where, as here, the parties are business entities of approximately equal bargaining ability and strength.
“ ‘Although the common law may be impliedly repealed by a statute which is inconsistent therewith, or which undertakes to revise and cover the whole subject matter, repeal by implication is not favored, and this result will be reached only where there is a fair repugnance between the common law and the statute, and both cannot be carried into effect.’
“Statutes in derogation of the common law are to be strictly construed. .. . ”
West Indies v. First Nat’l Bank, 67 Nev. 13, 32-33, 214 P.2d 144, 153-54 (1950), citing, 15 C.J.S., Commerce § 12, at 620. See also Smith v. Chipman, 220 Or. 188, 348 P.2d 441 (1960) (statutory landlord’s relief right held to be dissimilar enough from common law right of distress to be deemed not to have replaced the more ancient remedy).
The Court finds itself unwilling to overlook, at the Trustee’s behest, the priority right granted under 8 Anne, ch. 14, and unable to find Nevada-oriented judicial or legislative authority for the abrogation of that right. Based upon this statute, therefore, the court must hold that First Wisconsin National Bank has a priority under section 64(aX5) of the Bankruptcy Act. Denial of the Trustee’s objection is in order for those rents accruing during the three-month period immediately preceding the filing of the instant petition. The Court will file an appropriate order herewith.
This Memorandum Opinion shall serve, for all purposes and pursuant to Federal Bankruptcy Rule 752, as the Findings of Fact and Conclusions of Law of the Court in this matter. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488974/ | MEMORANDUM DECISION — REJECTION OF MARINA LEASE AND DENIAL OF REHEARING OF CONFIRMATION ORDER
THOMAS C. BRITTON, Bankruptcy Judge.
The debtors have moved for rehearing of the Order Confirming Joint Plan of Reorganization entered January 12. (C. P. No. 1335). Lifetime, a mortgagee creditor, seeks an order evicting the tenant-manager of the Outrigger Marina. (C. P. No. 1342). The tenant-manager, Arch Creek B & G Corporation, has responded to the application for eviction. (C. P. No. 1353a). The debtors’ attorney represents Arch Creek and Harry Siegel in these two related matters. The matter was heard on February 9.
I deny reconsideration of the Confirmation Order and grant the relief sought by Lifetime.
The circumstances pertinent to these two issues are as follows. The Joint Plan as confirmed provides for the rejection of certain contracts, including a May 22, 1975 lease and subsequent assignment to Harry Siegel and a second lease dated April 11, 1978 by the debtors to Harry Siegel of the Outrigger Marina. The Act, § 116(1), authorizes such a provision in a Chapter X plan.
Rejection of these two leases is opposed on two principal grounds. It is argued first that, except under circumstances not present here, a lease from the debtor to another can never be rejected under § 116(1). The point is discussed at length in 6 Collier on Bankruptcy (14th Ed.) ¶ 3.24[1.-1] and no useful purpose would be served by a repetition here. That discussion recognizes that such a lease may be rejected and the lessee may be deprived of possession not because of the rejection of an executory contract but “because of the superior rights of the mortgagee,” where the lease is subordinate to the mortgage. Ibid, pages 603-604; Matter of Hotel Governor Clinton, Inc., 2 Cir. 1938, 96 F.2d 50, cert. den. 305 U.S. 613, 59 S.Ct. 72, 83 L.Ed. 390. As stated by the editors:
“Since a plan of reorganization can deal with secured claims, and a junior but valueless lien can be eliminated, the estate created by a lease expressly subordinate to a mortgage can be wiped out where the value of the property is less than the mortgage indebtedness.”
Those are the facts here. The earlier lease was by stipulation terminated on June 20, 1980. Mortgagees’ Exhibit 4. Arch Creek can claim no right under that lease. x-The later lease was executed after the debtor’s mortgage to Miami National Bank which expressly subordinated future leases of more than five years to the mortgage. The lease in question runs 30 years.
It is true, as the objectors argue, that the Miami National Bank mortgage is for $4.5 million and the total Outrigger property is worth $13.5 million. However, I take notice of the fact that the Bank mortgage is secured by the marina and certain other commercial property and the appraisal accepted by this court in valuing the outrigger property allocated a value to the marina and commercial property far less than the balance owed the Bank. I accept that valuation.
The objectors insist that Matter of Minges, 2 Cir. 1979, 602 F.2d 38 recedes from Governor Clinton. I disagree. The lease in Minges was not terminable upon foreclosure. Ibid., at page 40. The essence of Governor Clinton is that a lease, junior to an undersecured mortgage and therefore valueless, can be eliminated in bankruptcy just as it could in foreclosure. The mortgagee in Minges was expressly precluded from terminating the lease in foreclosure except on the lessee’s default. It is arguable, as is *154noted in Minges (at page 44), whether a mortgagee can improve its position as to a lease in bankruptcy, however, it should not be arguable that a mortgagee in a bankruptcy liquidation plan retains a right it would certainly have in foreclosure.
The objectors’ remaining ground is that by the terms of the contract between them, the mortgagees have agreed not to terminate this lease unless the tenant defaults.
The objectors rely on the fact that the lease in question contains a specific provision like that in the Minges lease, precluding termination in the event of foreclosure. The mortgagees were not parties to the lease. It had never been approved by the mortgagees. It was, therefore, in clear contravention of the mortgage restriction against long term leases. The lease was junior to the perfected mortgage and, therefore, the lease provision in this instance is totally ineffective.
Minges held that there was an insufficient record and remanded for findings on the issue whether the lease was burdensome to the estate. In our case, that question does not present itself. The only creditors who will receive partial payment of their claims and, therefore, are affected by the plan are two major mortgagees, the plan proponents. All general claims are extinguished, because the assets fall far short of the mortgage debt. As a matter of understandable business judgment, the mortgagees seek the rejection of this long term lease-management agreement encumbering the marina. I find the agreement clearly burdensome to the estate.
The lease-management agreement with Arch Creek B & G Corporation is terminated and that corporation is ordered to vacate the premises forthwith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488975/ | ORDER ON MOTION FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Bankruptcy Judge.
THIS IS an adversary proceeding commenced by Lawrence S. Kleinfeld (the Trustee) against Stephen Reids, William E. Crown, Jr., and Carl 0. Dunbar, Jr. The complaint seeks leave to sell certain properties of the estate free and clear of liens of the Defendants and also seeks a declaration that any lien claim on subject property by the Defendants is invalid and unenforceable against the Trustee by virtue of § 544 of the Bankruptcy Code because, according to the Trustee, none of the Defendants perfected a lien on the subject property as required by Fla.Stat. § 679.301(l)(b) (1979).
The Plaintiff’s Motion is based on the cold record consisting of a complaint and *187answer filed by the Defendants who denied in their answer all material allegations of the complaint. The Defendant, Stephen Reids, filed an affidavit in support of his Motion on the date of the hearing and not within the time required by Bankruptcy Rule 756 which adopts Fed.R.Civ.P., 56, that is, at least one day prior to the date of the hearing.
At the hearing, the Trustee stated that inasmuch as he was assured by opposing counsel that Mr. Reids does not have a Financing Statement recorded in the Office of the Secretary of State, and since his own inquiry from that Office revealed that there is no Financing Statement on record naming Screens as Debtor it would not be necessary to obtain documentation from the Office of the Secretary of State. At the outset, the Defendants, William E. Crown, Jr., and Carl 0. Dunbar, Jr., conceded that they do not claim any interest in the subject property. This leaves for consideration solely the validity and enforceability of the lien claim of Stephen Reids.
The Affidavit submitted in support of the Motion filed by the Defendant, Reids, includes as an exhibit, a copy of a Security Agreement executed by Screens on January 12, 1978, in favor of the Barnett Bank of Clearwater (the Bank) (Exhibit A), and a Financing Statement unsigned and without showing a filing stamp by the Office of the Secretary of State naming Screens as the Debtor, and the Bank as the secured party (Exhibit B). It is further without dispute, and is conceded, that View-All Aluminum Products, Inc., (View-All) purchased all of the outstanding stock in the Debtor corporation and executed a promissory note in favor of Mr. Reids in the principal sum of $74,285.72 (Exhibit C); that also, as part of this transaction, Reids executed a subordination agreement and an assignment whereby he agreed to subordinate his claim against Screens to the claim of the Bank. This subordination agreement executed in consideration of the Bank’s willingness to extend the maturity date of the note of Screens.
It is without dispute that the obligation owed by Screens to the Bank was paid in full and on the date this liquidating proceeding commenced, there was no longer any indebtedness outstanding to the Bank. While it is intimated by counsel for Reids that Screens did, in fact, execute a promissory note in favor of Reids acknowledging an indebtedness, it appears that Screens never executed a security agreement in favor of Reids pledging its properties as collateral for any alleged indebtedness owed by Screens to Reids.
It is the contention of Reids that by virtue of the subordination agreement, it acquired the security interest of the Bank, and therefore, the fact that there is no Security Agreement or Financing Statement between him and Screens is immaterial and without consequence.
Having considered the respective contentions of the parties together with the relevant portions of the record including the affidavit submitted by Mr. Reids and statement of counsel for the remaining Defendants, this Court is satisfied that there are no genuine issues of material fact and the Trustee is entitled to a judgment as a matter of law against all of the Defendants for the following reasons:
As noted earlier, the Defendants, William E. Crown, Jr., and Carl 0. Dunbar, Jr., no longer make any claim to the subject property and, therefore, it is proper to enter a judgment against them determining that they have no cognizable lien interest or any other type of interest in the subject property. This leaves for consideration the lien claim of Mr. Reids. Since it is now admitted by Mr. Reids that there was never a Security Agreement executed by Screens as Debtor in favor of Mr. Reids creating a security interest in favor of Mr. Reids in the assets of Screens, and there is no Financing Statement on record in the Office of the Secretary of State, naming Mr. Reids as a secured party, and Screens as a Debtor, it is clear that Mr. Reids never acquired a security interest in the assets of Screens, let alone a perfected security interest.
*188Even assuming, but not admitting, that by virtue of the subordination agreement described earlier, Mr. Reids somehow acquired the position of the Bank and succeeded to the interest of the Bank, it is clear that because the obligation owed to the Bank by Screens was fully satisfied, there remained no debt which could support the claimed security interest.
From all of this, it follows that even if Mr. Reids derived some rights from the subordination agreement, and the alleged assignment from the Bank, he could not obtain a greater right than his predecessor in interest had, i. e. the Bank, whose interest was fully extinguished and terminated when the obligation was paid, thus, Mr. Reids did not acquire as a matter of law any rights under the original security agreement in the financing statement executed by Screens Unlimited in favor of the Bank.
This being the case, since there are no genuine issues of material fact and Mr. Reids has no enforceable interest in the subject property, the Trustee is entitled to a judgment as a matter of law.
A separate final summary judgment will be entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488976/ | MEMORANDUM OPINION
RICHARD N. DeGUNTHER, Bankruptcy Judge.
This matter comes before the Court on the Motion of Credithrift of America, Inc., to Dismiss the Complaint to Avoid Lien filed by the Debtors, Victor T. Macias and Juanita Marie Macias. Credithrift is represented by Attorney Stephen Balsley. The Debtors are represented by Attorney Rolland McFarland.
BACKGROUND
The Debtors’ Chapter 13 Plan was filed on February 29, 1980. Credithrift timely filed its Proof of Claim as a secured creditor. In accordance with the classification procedure of the Chapter 13 Trustee, James Kohlhorst, on March 27, 1980, the Credi-thrift claim was ordered classified at $1040 secured, $368 unsecured.
On April 28,1980, the plan was confirmed with the claim of Credithrift classified as set forth above. On September 10, 1980, the Debtors filed their Complaint to Avoid the Lien of Credithrift under Section 522 of the Bankruptcy Code.
ANALYSIS
The sole question presented to the Court is whether a Chapter 13 Debtor may, after confirmation, avoid a creditor’s lien under Section 522, thereby transforming such creditor from secured to unsecured status.
There are no reported cases, but it is no small matter. Under the confirmed plan Credithrift would be paid 100% of $1040 as a secured creditor, and 1% of $368 as an unsecured creditor. If the lien may now be avoided, the entire claim is rendered unsecured and Credithrift will be paid only 1% of $1408.
There presently exists no rule requiring that a Complaint to Avoid Liens be filed within a specified time limit. In a Chapter 13 case good practice requires the filing of such a complaint simultaneously with the Voluntary Petition initiating the case. It strikes this Court as unfair and patently impermissible to permit a debtor to lull a creditor into acceptance of a plan on the basis that he will be treated as secured, then after confirmation transform the secured claim to unsecured. The rights of the parties become fixed on confirmation. Thereafter they cannot be rearranged by a Complaint to Avoid Liens.
An Order consistent with this Memorandum Opinion is filed herewith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492808/ | ENTRY ON MOTION FOR SUMMARY JUDGMENT
ROBERT L. BAYT, Bankruptcy Judge.
This matter is before the Court on the Motion for Summary Judgment (“Motion for Summary Judgement”), filed by Casey D. Cloyd (“Creditor”) on October 23, 1997, and on the affidavit by the Creditor (“Affidavit”), attached as an exhibit to the Motion for Summary Judgment.1
Sami D. Alaruri (“Debtor”) filed a petition under Chapter 7 on July 25, 1995. The Creditor filed the complaint (“Complaint”) that initiated this adversary proceeding on November 1,1996.
Prior to the bankruptcy filing, the marriage of the Debtor and his former spouse, Elizabeth Hepola (“Ms. Hepola”), was dissolved. The dissolution court appointed the Creditor to serve as guardian ad litem for the parties’ son, Tarek (“Tarek”). The Debt- or and Ms. Hepola were ordered to each pay one-half of the guardian ad litem fees incurred on behalf of Tarek.
The Creditor alleges in the instant Motion for Summary Judgment that he is owed guardian ad litem fees totaling $1,014.98 by the Debtor.2 The Creditor further alleges that the fees he is owed are non-dischargea-ble pursuant to 11 U.S.C. Section 523(a)(5), because they are in the nature of child support.
Section 523(a)(5) provides in relevant part as follows:
(a) A discharge under section 727 ... does not discharge an individual from any debt—
(5) to a ... child of the of the debtor, for ... support of such ... child, in connection with a separation agreement, divorce decree or other order of a court of record ____
At least two circuit courts of appeal have held that guardian ad litem fees are in the nature of child support, and are non-dischai'geable pursuant to Section 523(a)(5). In re Miller, 55 F.3d 1487 (10th Cir.1995); Matter of Dvorak, 986 F.2d 940 (5th Cir.1993). As the 10th Circuit stated in Miller, *826the emphasis should be placed on whether the debt in issue relates to the welfare of the child.
11 U.S.C. [Section] 523(a)(5) should be read as using the term ‘support’ in a realistic manner; the term should not be read so narrowly as to exclude everything bearing on the welfare of the child but the bare paying of bills on the child’s behalf.’
Miller, 55 F.3d at 1490 (quoting In re Jones, 9 F.3d 878 (10th Cir.1993)).
The Court has been presented with no facts to cause it to deviate from the precedent established by the Tenth Circuit and the Fifth Circuit in Miller and Dvorak. Accordingly, the Court holds that the guardian ad litem fees in issue here are in the nature of child support, and are non-dischargeable pursuant to Section 523(a)(5).
IT IS, THEREFORE, ORDERED, ADJUDGED AND DECREED that the guardian ad litem fees in the amount of $1,014.98, owed by the Debtor to the Creditor, are hereby DECLARED to be non-dischargeable pursuant to 11 U.S.C. Section 523(a)(5), as being in the nature of child support.
. On October 27, 1997, a notice of the Motion for Summary Judgment was sent to counsel for the Debtor, requiring that any response to the Motion for Summary Judgment be filed within 15 days of the notice. To date, the Debtor has not filed a response to the Motion for Summary Judgment.
. In the Motion for Summary Judgment, the Creditor alleges that he is owed $1,120.00 by the Debtor. The figure set out by the Creditor in his Affidavit is different; in the Affidavit, the Creditor states that he is owed $1,014.98 by the Debt- or. The dissolution court orders attached to the Creditor’s Affidavit indicate that a third sum is owed by the Debtor to the Creditor, i.e., $1,059.75 ($1,198.00 + $570.00 + $351.50, with the total divided by two). Given the discrepancy among the figures supplied to the Court, the Court will use the figure alleged by the Creditor in his Affidavit, $1,014.98. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492809/ | ENTRY ON MOTION FOR SUMMARY JUDGMENT
ROBERT L. BAYT, Bankruptcy Judge.
This matter is before the Court on the Motion for Summary Judgment (“Motion for Summary Judgment”), filed by Patricia J. Lynn (“Creditor”) on December 10, 1997. George E. Cline (“Debtor”) filed a response (“Response”) to the Motion for Summary Judgement on January 9, 1998. The Creditor filed a reply (“Reply”) on January 20, 1998. The Court, having reviewed the Motion for Summary Judgment, the Response, and the Reply, now-makes the following Entry.
The Debtor filed a petition under Chapter 7 on May 12, 1997. Prior to the Debtor’s bankruptcy filing, the Creditor did bookkeeping work for the Debtor. During the time that the Creditor worked as a bookkeeper for the Debtor, the Debtor would occasionally deliver blank checks to the Creditor, with the understanding, according to the Debtor, that the Creditor would prepare the checks for signature, and the Debtor would sign them.
At some point in 1992, the Debtor became dissatisfied with the parties’ working arrangement. The Debtor fired the Creditor on March 17, 1992. The Debtor asserts that around the time of the firing, he discovered that the Creditor had written checks on the Debtor’s account, signed the Debtor’s name to the checks, cashed the checks, and then used the funds for personal purposes. On March 17, 1992, the Debtor reported the Creditor’s alleged unauthorized check-writing to the Marion County Prosecutor’s Office. On April 1, 1992, criminal charges were filed against the Creditor. The charges were eventually dismissed. The Debtor also filed a complaint with the Office of the Indiana Secretary of State, alleging that the Creditor had forged a notary jurat on a land contract.
*830In December of 1993, the Creditor filed a complaint against the Debtor in state court (“Defamation Complaint”), based on the Debtor’s alleged defamation of the Creditor. In Counts I and II of the Defamation Complaint, the Creditor made the following allegations against the Debtor:
COUNT I
2. On March 17, 1992, George E. Cline and ABC Inspections and Termites, Incorporated reported to the Marion County Prosecutors Office Patricia Lynn had written several of his check [sic] to herself and endorsed those checks and cashed them without his permission.
4. On April 1, 1992, charges were filed against Ms. Lynn in the Marion County Superior Court Room Number 6.
5. After investigation, the charges were dropped and the State of Indiana agreed in an Agreed Entry of Expungement, Ms. Lynn committed no offense.
6. As a proximate cause of the Defendants’ ... slanderous statement about the Plaintiff, the Plaintiff has suffered mental distress,, physical illness, loss of reputation and great embarrassment, all of which will continue into the future.
WHEREFORE, the Plaintiff respectfully requests the Court to enter an Order of Judgment on the Plaintiff’s Complaint against both Defendants and order them to pay a sum which will fully and fairly compensate her for her injuries.
COUNT II
1. On August'27, 1993, the Defendant, George E. Cline, filed with the Secretary of State a notary complaint accusing Patricia J. Lynn of forging a notary jurat on a real estate conditional sales contract between George E. Cline and Patricia Lynn, dated March 15,1991.
2. The real estate conditional sales contract was duly notarized by Roselyn Holmes
3. As a proximate cause of the Defendant’s slanderous statements against the Plaintiff, the Plaintiff has suffered mental distress, physical illness, loss of reputation and great embarrassment, all of which will continue in the future.
WHEREFORE, the Plaintiff respectfully requests the Court to enter an Order of Judgment on Count II of the Plaintiffs Complaint and order him to pay a sum which will fully and fairly compensate her for her injuries.
After filing the State Court Complaint, the Creditor filed a Request for Admissions. The Debtor did not file a response to the Request for Admissions, even though he was represented by counsel at the time. The admissions were eventually deemed admitted by order of the state court. The Creditor then filed a motion for summary judgment (the “First Motion for Summary Judgment”), based on the Debtor’s deemed admissions.
The state court held a hearing on the First Motion for Summary Judgment on June 13, 1995, at which hearing the Creditor appeared in person and by counsel, and the Debtor appeared by counsel. Argument was presented to the state court, and the state court granted summary judgment for the Creditor.1 On June 25, 1996, a hearing on damages was held, at which the Creditor appeared in person and by counsel, and at which the Debtor appeared in person and by counsel. Evidence was taken by the state court, and the state court entered a judgment for the Creditor for damages in the amount of $175,000.
In the instant Motion for Summary Judgment, the Creditor alleges that collateral es-toppel should be applied to bar relitigation of the matters previously decided by the state court. The Creditor further alleges that the debt she is owed should be declared non-*831dischargeable pursuant to 11 U.S.C. Section 523(a)(6).
In order to apply collateral estoppel to bar the relitigation of a previously-litigated issue, four elements must be met:
(1) the issue sought to be precluded is the same as that involved in a prior action,
(2) the issue was actually litigated,
(3) determination of the issue was essential to the final judgment, and
(4) the party to be estopped was fully represented in the prior action.
Fidelity Financial Services, Inc. v. Cornell-Cooley, 158 B.R. 128, 132 (S.D.Ind.1993) (quoting Levinson v. United States, 969 F.2d 260, 264 (7th Cir.1992)).
Was the Defamation Issue “Actually Litigated”
Where a prior state court proceeding was resolved by a motion for summary judgment, rather than after a trial, the issue arises as to whether the matters sought to be precluded in the subsequent bankruptcy proceeding were “actually litigated” in the prior proceeding. This Court has previously held that a state court judgment on an unopposed motion for summary judgment is an “actual litigation”, for the purposes of applying collateral estoppel in a subsequent bankruptcy proceeding. In re Sims, Bankr.No. 95-6201, Adv. No. 95-429 (Bankr.S.D.Ind., Entry Feb. 10, 1997). Other courts have similarly held that collateral estoppel should be applied in a subsequent bankruptcy proceeding, where the debtor failed to oppose a motion for summary judgment in a prior state court proceeding. See, e.g., Matter of Staggs, 177 B.R. 92 (N.D.Ind.1995). Compare In re Docteroff, 133 F.3d 210 (3rd Cir.1997) (actual litigation requirement for collateral estoppel is met, even though prior judgment was entered by default as a sanction for the debt- or’s bad faith conduct in discovery, and was not a determination on the merits).
The application of collateral estoppel is particularly appropriate here, where the Debtor did, in fact, raise some opposition in state court to the Creditor’s First Motion for Summary Judgment. The Debtor appeared by counsel'at the June 13, 1995 hearing on liability, and appeared both in person and by counsel at the June 25, 1996 hearing on damages.
For all the foregoing reasons, the Court concludes that the “actually litigated” element for the application of collateral estoppel has been met in the circumstances of this case.
Are the Issues Here Identical to the Issues Litigated in the State Court Proceeding
The Court turns next to the question of whether the issue sought to be precluded here, i.e., that the Debtor caused a willful and malicious injury to the Creditor, is the same as the issue that was previously litigated in the state court proceeding. The Debt- or argues that the state court could have found that the Debtor defamed the Creditor, without finding that the Debtor acted in a “malicious” manner.
a) The Elements of Defamation under Indiana Law
As recently as 1994, the Indiana Supreme Court has held that “malice” is an element of defamation. In Schrader v. Eli Lilly and Co., 639 N.E.2d 258 (Ind.1994), the Indiana Supreme Court listed “malice” as one of the elements of defamation:
To maintain an action for defamation, a plaintiff must show a communication with four elements: 1) defamatory imputation; 2) malice; 3) publication; and 4) damages.
Schrader, 639 N.E.2d at 261. Similarly, the Indiana Court of Appeals has indicated that “malice” is an element of defamation.
In a defamation ease, the elements to be shown by the plaintiff are 1) a communication with defamatory imputation, 2) malice, 3) publication, and 4) damages.
Owens v. Schoenberger, 681 N.E.2d 760, 763 (Ind.App.1997).
The cases that the Debtor cites in support of his argument that “malice” is not an element of defamation, are distinguishable on their facts, see Hotel & Restaurant Emp. and Bartenders Intern. Union v. Zurzolo, 142 Ind.App. 242, 233 N.E.2d 784 (1968) (discussing intent where defamation not commu*832nicated to third person), Olsson v. Indiana University Bd. of Trustees, 571 N.E.2d 585, 587 (Ind.App.1991) (discussing qualified privilege to defame), and AAFCO Heating & Air Conditioning Co. v. Northwest Publications, Inc., 162 Ind.App. 671, 321 N.E.2d 580 (1974) (discussing qualified constitutional privilege, where matter discussed is of public concern), or have been overruled by cases such as Schrader.
b) Proof of “Malice" Under Section 523(a)(6)
According to the Seventh Circuit, for the purposes of Section 523(a)(6), an act is “malicious” if it is done “ ‘in conscious disregard of one’s duties or without just cause’ ”. Matter of Thirtyacre, 36 F.3d 697, 700 (7th Cir.1994) (quoting Wheeler v. Laudani, 783 F.2d 610, 615 (6th Cir.1986)). Pursuant to the holding in Tkirtyacre, the term “malicious” in Section 523(a)(6) does not require a showing of illwill or specific intent to do harm. Thirtyacre, 36 F.3d at 700. For the Creditor to prove in this Court that the Debtor acted with “malice”, the Creditor need not prove that the Debtor had a specific intent to do harm to the Creditor, i.e., that the Debtor intended to defame her when he reported her alleged crime to the Prosecutor’s Office, or when he filed a notary claim with the Secretary of State. To prove that the Debtor acted with malice, the Creditor need only prove that the Debtor acted “in conscious disregard of [his] duties”, or “without just cause or excuse”. Tkirtyacre.
Having reviewed the Defamation Complaint filed in state court, the state court’s findings, and the elements of defamation under Indiana law, it is the conclusion of the Court that the state court could not have found the Debtor liable for defamation, without finding either that the Debtor acted in conscious disregard of his duties, or that the Debtor acted without just cause or excuse.
For all the foregoing reasons, the Court concludes that the various elements for the application of collateral estoppel have been met in this case. Based on the application of collateral estoppel, the Court further concludes that the debt that the Debtor owes to the Creditor is a debt for a willful and malicious injury to the Creditor, and is nondis-ehargeable pursuant to Section 523(a)(6).
IT IS, THEREFORE, ORDERED, ADJUDGED AND DECREED that the debt owed to the Creditor in the amount of $175,-000.000 is non-dischargeable pursuant to 11 U.S.C. Section 523(a)(6).
. The minute entry for the June 13, 1995 hearing reads as follows:
Pltf i/p & b/c. Def b/c. Arguments presented on M. for S.J. the ct. finds no material issues of fact and grants S.J. on Counts I and II of plaintiffs complaint. Cause ordered set for hrg. on damages. Notice to be sent. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488977/ | RICHARD N. DeGUNTHER, Bankruptcy Judge.
This matter comes before the Court on the “Petition for Payment of Secured Claim from Cash Collateral after Filing of the Petition for Bankruptcy in the Above-entitled Cause” filed by The Central National Bank of Sterling, Sterling, Illinois. Central is represented by Attorney Vernon Frye. The Trustee, Kenneth Ritz, though not made a Defendant or Respondent in the matter, has entered his appearance.
BACKGROUND
Central seeks to recover $133,333 in the possession of the Trustee. The facts are as set forth in counsels’ Briefs. The essential fact is that (with a small exception to be noted later) the money was not on deposit at Central at the time of filing the Involuntary Petition which initiated these proceedings, but was subsequently put on deposit at Central.
Central advances two theories of recovery:
1) Setoff
2) Security Interest
ANALYSIS
The Court flatly rejects the theory of setoff except to the extent of $1200.25 which was in the Debtor’s account at Central on the date of filing the original petition initiating these proceedings. See 4 Collier on Bankruptcy, Paragraph 553.14(4).
* * * * * *
The theory that Central had a security interest in the money now held by the Trustee requires somewhat more analysis. The security agreement provides that “holder has the right of setoff or lien on any deposit or sums now or hereafter owed by holder to debtor ....”. Therefore, on the date the original petition was filed Central had no security interest in the Debtor’s account in another bank. That account becomes property of the Debtor’s estate under Section 541 of the Bankruptcy Code. There is nothing the debtor or a creditor can do after the filing of the original petition that will confer in> the creditor a right to the account superior to that of the Trustee measured as of the date of filing the original petition.
Under the former Bankruptcy Act the Trustee would have had title to, or owned as Trustee, the Debtor’s account in another bank. While the title theory is abandoned under the present Bankruptcy Code, the substantive effect is not and should not be changed: As of the date of filing, the Debt- or’s property, including an unencumbered bank account, becomes part of the Debtor’s estate to be administered by the Trustee.
To draw an analogy: As of the date of filing the original petition the debtor owns an automobile in which a creditor has an unperfected security interest. A month after bankruptcy the debtor sends the necessary documents to the Secretary of State to perfect a lien on the automobile in favor of the creditor. It is too late. The Trustee’s rights to the car are measured as of the date of filing the original petition.
*228Here, the Debtor’s transfer of its funds to an account at Central is too late to give Central a “right of setoff or lien” superior to the rights of the Trustee measured as of the date of filing the original petition. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488979/ | OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The narrow issue before us is the feasibility of the debtor’s chapter 13 plan. Since the debtors have failed to convince us that they will be able to obtain the refinancing to fund their plan, we conclude that the plan is not feasible and we will deny confirmation. ■
The facts of the case at bench are as follows:1 In March, 1975, John and Elizabeth McGowan (“the debtors”) borrowed $36,250 from Continental Bank for which they gave the Bank a note cosigned by Jay Vending, Inc. (“Jay”). The money borrowed was used by the debtors to open a bar, and the loan was secured by a mortgage on the bar property and on the debtors’ residence, as well as by a security interest in the bar’s liquor license. In November, 1976, the loan was refinanced, again with Jay as cosigner, in the amount of $34,769.15.
*330Beginning in January, 1978, the debtors failed to make the monthly $548.00 payments due on the loan, whereupon Jay paid off the balance of the money owed to Continental Bank in December, 1978, and took an assignment of the mortgages and security interest. In .April, 1979, foreclosure proceedings were begun by Jay on the mortgage of the residential property owned by the debtors. A complaint and confession of judgment were filed in April, judgment was entered in May, and a writ of execution thereon was then filed. The debtors immediately filed a petition under Chapter XIII of the Bankruptcy Act. That petition was subsequently voluntarily dismissed and a new petition was filed under Chapter 13 of the Bankruptcy Code.2
Jay subsequently filed a complaint (and an amended complaint) seeking relief from the automatic stay. This was denied by us in an opinion dated September 22, 1980. See In re McGowan, 6 B.R. 241 (Bkrtcy.E.D.Pa.1980). Subsequent to that action, the trustee sold the liquor license valued at $10,000 and the bar property valued at $2,000, thus reducing the amount of Jay’s claim, which is secured by a mortgage on the debtors’ residence, to $22,900.
The debtors filed an amended plan on November 28, 1980, providing, inter alia,
1. Debtors propose to pay $150 a month under their chapter 13 plan to Jay Vending on account of their secured claim in the amount of $22,900.
2. While debtors are making payments on account of this allowed secured claim they will be seeking long term financing so that the entire claim of $22,900 can be paid in full within the three year plan.
Jay objected to the confirmation of that plan, arguing that it should not be confirmed because it was not proposed in good faith as required by § 1325(a)(3) and that said plan does not provide for payment of the full amount of Jay’s secured claim in accordance with § 1325(a)(5)(B)(ii). Jay also contends that the debtors will be unable to comply with the plan as required by § 1325(a)(6).
Because it does not appear to us that the debtors will be able to comply with the second provision of the plan (above), we will deny confirmation. Section 1325 of the Code sets forth the requirements for a chapter 13 plan, and subsection (a) of that section provides that the court shall confirm a plan if:
(6) the debtor will be able to make all payments under the plan and to comply with the plan.
In the legislative history to § 1325, subsection (a)(6) is interpreted to mean that a plan must be feasible in order to be confirmed. See S.R. No. 95-989, 95th Cong. 2d Sess. 142 (1978), U.S.Code Cong. & Admin. News 1978, p. 5787.
While we have no reason to believe that the debtors herein will be unable to comply with the first provision of the plan (above) providing for monthly payments of $150, there is no evidence to indicate that the debtors will be able to obtain the necessary financing to enable them to comply with the second provision. In fact, the evidence points to the contrary. The facts of this case show that the debtors were previously unable to obtain financing without the signature of Jay as guarantor. It is now apparent that the debtors are in no better position at this time to obtain a loan than they were before. In fact, their position is worse since the only asset which they have to pledge as collateral for such financing is the property already secured by Jay.
Since the debtors have offered no evidence to show that they will be able to obtain the necessary refinancing, we conclude that it does not appear that they will be able to fund the plan as proposed. We will, therefore, deny confirmation of that plan.
Because we are denying confirmation under § 1325(a)(6), we find it unnecessary to consider the other arguments presented by Jay.
. This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
. The Bankruptcy Code superseded the Bankruptcy Act as of October 1, 1979. The Bankruptcy Reform Act of 1978, Pub.L.No. 95-598, 92 Stat. 2683 (1978). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488980/ | *334ORDER DENYING MOTION TO DISMISS
GEORGE L. PROCTOR, Bankruptcy Judge.
Plaintiff has brought this action for reclamation against the Trustee and a creditor which claims a security interest in the subject property. Plaintiff alleges that it sold certain merchandise to one Herbert B. Smith, d/b/a Herbie-2, who then subsequently fraudulently transferred the merchandise to the debtor.
The bank has filed a motion to dismiss, contending that the property, upon acquisition by the debtor, became subject to the bank’s floating lien on inventory.
Plaintiff has cited authority for the proposition that a credit sale of goods by a buyer who does not intend to pay is void ab initio and that the defrauded seller has an absolute right of reclamation. The Court is unable to give these authorities much weight since they antedate both the Uniform Commercial Code and the Bankruptcy Code. The Court is satisfied that the right of reclamation exists only to the extent provided by § 546(c) of the Bankruptcy Code and § 2-702 of the UCC.
The bank argues that it has exclusive rights in the property on the basis of the decision in In re Samuels & Co. (Stowers v. Mahon), 526 F.2d 1238 (5th Cir. 1976). In that case a seller of goods was paid with a check which was subsequently dishonored. The seller sought to reclaim the goods, but did not follow the requirements of UCC 2-702. The Court held that: (1) the seller was a “cash1’ seller within the meaning of § 2-403; and (2) the holder of a lien which covers after acquired property is a Article 9 good faith purchaser. “Upon non-payment [the buyer] lost the right to retain or dispose of the property, but the Code recognizes that the breaching buyer had the power to encumber, despite nonpayment, so long as he retained possession.” Id. at 1247.
Therefore, the defendant bank has a lien on the goods if its security interest has attached. Samueis set forth a three part test to determine whether a security interest has attached.
The first element is that there must be a valid security agreement. Neither side contests the existence or validity of the security agreement, and for the purposes of this motion to dismiss, the Court will consider this test met. Secondly, value must have been given by the secured party. For the reasons just discussed, the Court will consider this test to have been also met. The third element is that the debtor must have rights in the collateral. In the Samu-els case, upon delivery the buyer acquired rights in the property sufficient to allow attachment of the security interest. That debtor gave a check which was subsequently dishonored; the instant debtor, argues plaintiff, was not a cash buyer but a fraudulent transferee. For purposes of the motion to dismiss, the allegations of the complaint must be taken as true. The plaintiff has alleged, in effect, that the debtor had no right in the collateral and therefore the security- interest could not have attached.
Accordingly, it is ORDERED as follows:
1. Defendant’s motion to dismiss is denied;
2. The defendant is directed to answer the complaint within fifteen (15) days;
3. A continued pretrial conference will be held on March 23, 1981, at 3:30 P.M., in Room 240, U. S. Post Office and Courthouse Building, 311 West Monroe Street, Jacksonville, Florida. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488981/ | MEMORANDUM DECISION
M. S. YOUNG, Bankruptcy Judge.
This matter is before me after hearing on defendants’ motion to reconsider Memorandum Decision entered herein on January 30, 1981.
After hearing the arguments of counsel and considering briefs of counsel, together with the evidence adduced at the original hearing I conclude that I erred in holding that the failure to make interest or contract payments since the commencement of the plan is cause for vacation of the 362 stay. I adopt pages 1, 2, and 3 to line 7 of the opinion, but withdraw the balance of the opinion. My main reason for doing so is that there was simply inadequate evidence produced at the first hearing to establish that no possible plan or arrangement could be confirmed. Second, it appears that a liquidation plan might be feasible because of the large apparent equity of the debtor in the ranch. To allow the Oregon Court to proceed to a possible strict foreclosure of the contracts of sale herein could result in the loss of that equity to the detriment of unsecured creditors.
Debtor must promptly proceed to seek acceptance of its plan now that the disclosure statement has been approved and must take prompt action to determine the amount of the disputed claim of Cody and Ferrell.
Therefore, I will not at this time vacate the stay, but unless debtor takes action as indicated within the next 60 days, plaintiffs may renew their application for removal of the stay. I am convinced that defendant cannot propose a feasible extension plan until they settle the dispute as to the amount owed to Cody and Ferrell.
*343Counsel for debtor may prepare an Order in accord with this decision. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488982/ | OPINION AND DECISION
BERT GOLDWATER, Bankruptcy Judge.
On June 3, 1980, Thomas R. Haddad (Tom) filed a petition for voluntary bankruptcy under Chapter 7 of the United States Bankruptcy Code.: On June 5, 1980, *369the debtor filed his Statement of Financial Affairs with Schedule B-4 appended to the statement choosing California State exemptions under 11 U.S.C. 522(b)(1).1 Schedule B-4 contains debtor’s claim of exemptions pertaining to clothing, jewelry, home, and automobile. In addition, debtor claims that $400,000 cash remaining from insurance proceeds received on the life of his deceased brother and business partner, Abe H. Had-dad (Abe), is exempt. On July 10,1980, the trustee filed a Report of Exempt Property objecting to the debtor’s claimed exemption of the $400,000. A hearing was held on December 15, 1980.
Tom and Abe were equal partners in a farming related business in Kern County, California, known as Golden H Packing Company (G.H.P.) until Abe’s death on February 28, 1979. G.H.P. was, in turn, a 50% partner of LaVar Murdock in a potato farming business in Nevada known as Golconda Farms (Golconda).
In connection with each of these businesses, Tom and Abe had certain insurance agreements. With respect to G.H.P., Abe and Tom executed a buy-sell agreement funded by life insurance. On Abe’s death, there was approximately $1,000,000 insurance proceeds paid to G.H.P. Such proceeds were collected by Tom and deposited in his name. With respect to their interests in Golconda, each brother purchased a policy on the life of the other and named himself beneficiary. Premiums on these policies were paid by Golconda but charged to the respective partnership draw of each brother. On his policy on Abe’s life, Tom collected $751,561.64.
Of the insurance proceeds collected, there remains $400,000. This amount is presently held in time certificates of deposit subject to the Court’s decision on its status as exempt property of the debtor’s estate.
The debtor relies on Section 10171 of the California Insurance Code which provides as follows:
Any life policy or other agreement relating to the holding or payment of the proceeds of a life policy may provide that the proceeds thereof or payments thereunder shall not be subject to transfer, anticipation or commutation or encumbrance by any beneficiary, and shall not be subject to claims of creditors of any beneficiary or any legal process against any beneficiary.
If the proceeds are not exempt under the foregoing California law, an additional issue must be considered: whether or not a portion of the $400,000 is exempt under Section 690.9 of the California Code of Civil Procedure.2
I.
The debtor argues that Section 10171, coupled with the terms of the policy, exempt the insurance proceeds from the administration of the bankruptcy estate notwithstanding that the proceeds were paid to the beneficiary and that Section 690.9(a) specifically provides for the exemption of certain insurance proceeds. Section 10171 must be read in conjunction with Section 690.9 and it would do violence to the intent of the California Legislature to hold that Section 10171 may be construed to do what Section 690.9 is designed to do. Admittedly, the benevolent purposes to be served by wholly exempting the proceeds of life insurance from reach of creditors has long been recognized. Holmes v. Marshall (1905) 145 Cal. 777, 79 P. 534, cited in Debtor’s Points and Authorities. This purpose is served adequately by Section 690.9.
The spendthrift clause in Section 10171 simply means that an insured may place the proceeds of a policy upon his life *370beyond the reach of creditors of the beneficiary by providing that the proceeds shall not be subject to the claims of creditors. See Couch on Insurance 2d, Vol. 5, § 29:154. By doing this an insured renders the insurance company his trustee of a spendthrift trust in favor of the beneficiary. Section 10171 does nothing more than recognize the legality of a spendthrift clause in connection with insurance proceeds under California law. See generally 28 Cal.Jur.2d, Insurance, § 567, p. 327. The debtor contends that Section 10171 expressly covers payment of proceeds (as distinct from the retention of proceeds) making proceeds paid exempt from claims of creditors. It is the decision of this Court that the provision of the statute “holding or payment of proceeds” is designed to allow creation of a spendthrift trust for insurance proceeds when it is the intention of the insured, as expressed in the policy or other agreement, to protect proceeds held by an insurance company (e. g., proceeds representing an accumulative surrender value) or proceeds, however paid, from anticipatory alienation and attachment by creditors. As long as the insurance proceeds remain in the hands of the insurance company, such proceeds may not be reached by creditors. In this case, the proceeds have been paid to the beneficiary and cannot be protected by the provisions of Section 10171.
II.
Whatever exemption debtor had under Section 690.9 of the California Code of Civil Procedure was used by the debtor from the total insurance received. (California United States Bond and Mortgage Corp. v. Grodzins (1934) 139 Cal.App. 240, 34 P.2d 192.) There is no insurance exemption to be allowed.
Let judgment be entered that the debtor pay over the insurance proceeds of $400,000 and any accrued interest to Janet Chubb, the Trustee in Bankruptcy, subject to any other unresolved claims against the fund by others than the debtor.
. Tom is a resident of California but no creditor has objected to this venue.
. Section 690.9(a) provides as follows:
All moneys, benefits, privileges, or immunities, accruing or in any manner growing out of any life insurance, if the annual premiums paid do not exceed five hundred dollars ($500), or if they exceed that sum a like exemption shall exist which shall bear the same proportion to the moneys, benefits, privileges, and immunities so accruing or growing out of such insurance that such five hundred dollars ($500) bears to the whole annual premium paid. | 01-04-2023 | 11-22-2022 |
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