Opinion
No. 79-1193-BK-JAG-B
January 28, 1980
Former Bankruptcy Act — Preferences — Time of Transfer — Repossession of Goods
A creditor's repossession of goods sold to a debtor was a transfer of the debtor's property on account of an antecedent debt since the creditor had failed to retain title by perfecting his security interest. Therefore, the repossession was avoidable under Section 60b of the Bankruptcy Act. See Sec. 60b at ¶ 2562 and Sec. 547(b) at ¶ 9529.
Former Bankruptcy Act — Preferences — Avoidance — Knowledge of Insolvency
A creditor had reasonable cause to believe that the debtor was insolvent at the time of transfer since the bankrupt, who was in the process of closing his business at the time of repossession, had paid only a small percentage on his account with the creditor. Further, the creditor's treasurer acknowledged that he was worried about the bankrupt's credit and that he had made many demands for payment, all of which clearly showed that the creditor "did not have confidence in the bankrupt's credit." See Sec. 60(b) at ¶ 2562 and Sec. 547(b) at 9529.
[Digest of Opinion]
The bankrupt, who was in the plumbing business, became indebted to the creditor for $9,000 worth of plumbing supplies which the creditor had furnished. Without the knowledge or permission of the bankrupt, the creditor came to the bankrupt's business at night and took a total of $2,700 worth of supplies, crediting that sum against the bankrupt's accounts receivables.The trustee seeks to set aside this transfer as a voidable preference under Section 60(a) of the Bankruptcy Act. The creditor thereby contends that his sale of repossessed goods was a conditional sale in which he retained title until payment and, therefore, there was no "transfer" within the meaning of Section 60(a)(2) of the Bankruptcy Act.
The court found that the creditor not only used an invoice as the conditional sale agreement which was never signed by the purchaser, but further, failed to perfect this "attempted" security agreement. Therefore, under the state statutes, this transaction was an unperfected and therefore unenforceable security agreement and title did not remain in the seller when possession was transferred to the bankrupt. Accordingly, the creditor's repossession was a transfer of the debtor's property to the creditor on account of an antecedent debt, suffered by the debtor while he was insolvent and within four months before bankruptcy, the effect of which was to enable the creditor to obtain a greater percentage of his debt than other unsecured creditors.
The creditor's second contention is that he did not have knowledge of the bankrupt's insolvency at the time of the transfer. However, the court determined, that the creditor had reasonable cause to believe that the debtor was insolvent since the bankrupt, who was in the process of closing his business at the time of the repossession, had paid $2000 on an account with the creditor of over $19,000 incurred over the preceding two months. Further, the creditor's treasurer acknowledged that he was worried about the bankrupt's credit, that he had made many demands for payment and the circumstances of repossession clearly showed that the creditor had no confidence in the bankrupt's credit.