647 F.2d 977 (9th Cir. 1981), 79-3148, Matter of Holiday Airlines Corp.

Docket Nº:79-3148.
Citation:647 F.2d 977
Party Name:In the Matter of HOLIDAY AIRLINES CORPORATION, a California Corporation, (formerly known as Holiday Recreational Resources and Holiday Resources Corporation), Bankrupt. Curtis B. DANNING, Trustee in Bankruptcy of Holiday Airlines Corporation, a California Corporation (formerly known as Holiday Recreational Resources and Holiday Resources Corporatio
Case Date:June 08, 1981
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 977

647 F.2d 977 (9th Cir. 1981)

In the Matter of HOLIDAY AIRLINES CORPORATION, a California

Corporation, (formerly known as Holiday

Recreational Resources and Holiday Resources

Corporation), Bankrupt. Curtis B. DANNING, Trustee in

Bankruptcy of Holiday Airlines Corporation, a California

Corporation (formerly known as Holiday Recreational

Resources and Holiday Resources Corporation), Plaintiff-Appellee,

v.

WORLD AIRWAYS, INC., Defendant-Appellant.

No. 79-3148.

United States Court of Appeals, Ninth Circuit

June 8, 1981

Argued and Submitted Dec. 3, 1980.

Page 978

Bennett L. Silverman (on brief) and Irving Sulmeyer, Los Angeles, Cal., argued for defendant-appellant; Sulmeyer, Kupetz, Baumann & Rothman, Los Angeles, Cal., on brief.

Richard S. Berger, Gendel, Raskoff, Shapiro & Quittner, Los Angeles, Cal., argued for plaintiff-appellee; Lawrence Bass, Los Angeles, Cal., on brief.

Appeal from the United States District Court for the Central District of California.

Before GIBSON [*], SNEED and POOLE, Circuit Judges.

SNEED, Circuit Judge:

This is a bankruptcy case in which the issue is whether World Airways, Inc., a creditor of the bankrupt Holiday Airlines Corporation, Inc., received a preference recoverable by Holiday's Trustee in bankruptcy when it received payment for services and maintenance on a Lockheed-Electra aircraft, No. N-971-HA (971), which was under lease to Holiday, from the proceeds derived from the sale of another aircraft, No. N-974-HA (974), which was owned by Holiday. If this payment to World were considered merely the proceeds from the liquidation of its previously perfected security interest, which itself was immune from an attack by Holiday's Trustee, it would not be a preference. On the other hand, if it were considered a payment from proceeds, to which it had no claim better than that of a general creditor, to discharge the antecedent debt that arose from its services and maintenance with respect to aircraft 971, it would be a preference. We hold that the former is the proper characterization and that the payment was not a preference. Therefore, we reverse the judgment of the district court and remand this case to that court for further proceedings consistent with this holding and the opinion that follows.

I.

FACTS

Aircraft 971 was leased to Holiday by Petroleum Investment Services, Inc. and was subject to a security interest in favor of the Central Bank and Trust Company of Denver, Colorado. The agreement between petroleum and Holiday provides that Holiday was required at its own expense to maintain the aircraft in good order and repair and to perform such maintenance and inspection as necessary to comply with FAA Air Worthiness directives. Petroleum assigned Holiday's rental payments to the Denver bank presumably to be applied against the debt secured by the bank's security interest in aircraft 1971.

On October 7, 1973 Holiday entered into what was designated a Maintenance, Overhaul and Repair Agreement with World for the purpose of servicing Holiday's aircraft. The Agreement contained the following provision:

"(World) shall have a lien upon customer's aircraft and components for the value of all services furnished, including, without limitation, reasonable compensation for storage incurred by (World) by reason of customer's failure to accept delivery of aircraft or other flight equipment." Endorsement No. 2, paragraph (7).

On December 7, 1974, Holiday delivered aircraft 971 to World for servicing and maintenance and World supplied services and maintenance which had a reasonable value of $70,165.05. Aircraft 971 remained continuously in World's possession from the date of its delivery to January 24, 1975. World did not give written notice to Petroleum or the Denver bank prior to supplying

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these services, nor was written consent of either sought or obtained in connection with these services. World never attempted to record its lien on aircraft 971 with the Federal Aviation Administration pursuant to 49 U.S.C. § 1403.

On January 24, 1975 all of Holiday's aircraft, including both 971 and 974, were in World's possession for servicing. To meet its schedule commitments Holiday needed to obtain the release of at least some of its aircraft but World would release none unless payment for services with respect to any aircraft released was made or adequate security to assure such payment was made. To solve this problem it was agreed that World would surrender possession of aircraft 971 and Holiday would execute and deliver to World a chattel mortgage on aircraft 974 to secure the $70,165.05 owed with respect to aircraft 971. This was accomplished on January 24, 1975. However, possession of aircraft 971 was surrendered several hours before the chattel mortgage on aircraft 974 was executed and delivered. This chattel mortgage was recorded pursuant to 49 U.S.C. § 1403 on January 28, 1975.

Aircraft 974 was sold immediately thereafter and World received payment on January 31, 1975 of the $70,165.05 due for servicing aircraft 971. The end for the purposes of this case came shortly thereafter. On February 13, 1975 Holiday filed under Chap. XI and subsequently was adjudicated bankrupt.

To support his contention that the payment to World of $70,165.05 was a preference the Trustee contends that World had no valid perfected lien on aircraft 971 with the consequence that the chattel mortgage on aircraft 974 and the resulting payment were in discharge of an antecedent debt. World disputes this vigorously. It argues that a valid perfected lien on aircraft 971 existed from the time it serviced the aircraft. The lien's validity, World asserts, rests on either Cal.Civ.Proc.Code § 1208.61 and § 1208.62 or Cal.Com.Code § 9305. The Trustee responds by contending (1) that a failure to record World's lien pursuant to 49 U.S.C. § 1403 left it unperfected, (2) that in any event World's lien was invalid, except to the extent of $250, under Cal.Civ.Proc.Code § 1208.62, because no notice was given to either Petroleum or the Denver bank prior to commencing to service aircraft 971 and no written consent to do the work was obtained from either, (3) that no consensual lien perfected by possession pursuant to Cal.Com.Code § 9305 exists, and (4) that should one exist it was surrendered prior to the execution of the chattel mortgage on aircraft 974 and the payment of $70,165.05 by Holiday.

Inasmuch as we hold that a valid consensual lien perfected by possession did exist and that the gap of a few hours between the surrender of possession of aircraft 971 and the execution of the chattel mortgage on aircraft 974 is without legal significance for the purpose of this case, there exists no reason for us to address the questions raised by the trustee concerning a lien asserted pursuant to Cal.Civ.Proc.Code § 1208.62. We also hold that World's consensual lien perfected by possession is not invalid for failure to be recorded pursuant to 49 U.S.C. § 1403.

II.

THE EFFECT OF FAILURE TO RECORD PURSUANT TO 49 U.S.C. § 1403

The Trustee is correct when he contends that a preference exists if recordation by World under 49 U.S.C. § 1403 is necessary to perfect its lien on aircraft 971. Section 1403(c) provides some support for the position that such recordation is necessary. It states that "(n)o conveyance or instrument," able to be recorded under the act, "shall be valid in respect of such aircraft against any person," other...

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