22 B.R. 255 (Bkrtcy.D.Conn. 1982), 2-82-0097, Matter of Deephouse Equipment Co., Inc.

Docket Nº:Adv. No. 2-82-0097.
Citation:22 B.R. 255
Party Name:In the Matter of DEEPHOUSE EQUIPMENT COMPANY, INC., Debtor. ECOLOTEC, INC., Plaintiff, v. DEEPHOUSE EQUIPMENT COMPANY, INC., James R. Deephouse, Defendants. Bankruptcy No. 2-81-01245.
Case Date:July 28, 1982
Court:United States Bankruptcy Courts, Second Circuit

Page 255

22 B.R. 255 (Bkrtcy.D.Conn. 1982)

In the Matter of DEEPHOUSE EQUIPMENT COMPANY, INC., Debtor.

ECOLOTEC, INC., Plaintiff,

v.

DEEPHOUSE EQUIPMENT COMPANY, INC., James R. Deephouse, Defendants.

Bankruptcy No. 2-81-01245.

Adv. No. 2-82-0097.

United States Bankruptcy Court, D. Connecticut.

July 28, 1982

James J. Tancredi, Day, Berry & Howard, Hartford, Conn., for plaintiff.

Howard L. Siegel, Hoberman, Pollack & Roseman, P. C., Hartford, Conn., for defendants.

MEMORANDUM AND ORDER

ROBERT L. KRECHEVSKY, Bankruptcy Judge.

I.

ISSUE

This proceeding involves the rights of a defrauded seller when a buyer has resold the purchased goods and the proceeds of the resale remain identifiable after the buyer's filing of a bankruptcy petition.

Page 256

II.

BACKGROUND

Deephouse Equipment Co., Inc., the debtor, a dealer in heavy equipment used by industry and municipalities, filed a voluntary chapter 11 case on November 30, 1981. For the prior six years, the debtor had been a distributor for Ecolotec, Inc., a manufacturer of street-sweeping units called Vacu-sweepers. The debtor typically ordered a Vacu-sweeper only after it had arranged a resale of the unit. In July, 1981, the debtor purchased a Vacu-sweeper from Ecolotec which it then resold to the City of Danbury. However, upon receiving payment from Danbury, the debtor failed to pay Ecolotec. In September, 1981, the debtor purchased and paid for another Vacu-sweeper, allegedly representing to Ecolotec that it had not received payment from Danbury. On October 2, 1981, the debtor purchased a third Vacu-sweeper at a price of $61,786.00, and on October 7, 1981, it resold this unit to the City of New Haven for $59,647.00, plus a trade-in of a used street sweeper. Ecolotec claims that when it sold the debtor the New Haven unit, it relied on false representations from the debtor's president, James R. Deephouse, that the debtor had not received payment for the Danbury unit, but that such payment was imminent. When the debtor filed its petition on November 30, 1981, New Haven had delivered the used street sweeper to the debtor but had not yet paid the $59,647.00.

Ecolotec filed the present proceeding on February 16, 1982, against the debtor and its president, James R. Deephouse, individually, alleging in paragraph 22 of its complaint, that "(t)hrough the fraud of the defendants, the proceeds of the sale of the New Haven unit are not properly property of the Debtor but belong to Ecolotec, Inc." As relief, Ecolotec requested that a constructive trust be imposed on the proceeds of the sale of the New Haven unit. The parties stipulated at the start of the action that upon receipt from New Haven the funds would be segregated by the debtor, pending resolution of the complaint. Ecolotec does not allege that it made a demand in writing to reclaim the New Haven unit after the debtor received it. After depositions were taken by the parties, the debtor moved to dismiss the complaint for failure to state a claim upon which relief can be granted, pursuant to Fed.R.Bankr.P. 712 1 or, alternatively, for summary judgment, pursuant to Fed.R.Bankr.P. 756. 2 For the purposes of the following discussion, it will be assumed that all of the factual allegations by Ecolotec are true and that Ecolotec has established all of the necessary elements of a constructive trust. 3

III.

DISCUSSION

A.

This proceeding calls for an analysis of a seller's rights against an allegedly defrauding buyer, a topic which has produced substantial commentary. 4 The precise issue is the effect of s 546(c) of the Bankruptcy Reform Act on the defrauded seller who seeks to impress a constructive trust upon...

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