In re Amco Products, Inc.
| Citation | 17 BR 758 |
| Decision Date | 19 February 1982 |
| Docket Number | Adv. No. 80-0027.,Bankruptcy No. 79-01312-W-1 |
| Court | United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Western District of Missouri |
| Parties | In re AMCO PRODUCTS, INC., Debtor. John R. STONITSCH, Trustee, Plaintiff, v. COMMERCE BANK OF KANSAS CITY, Defendant. |
Frank W. Koger, Kansas City, Mo., for defendant.
John R. Stonitsch, Kansas City, Mo., for Trustee.
TURNOVER ORDER
This is an action brought by the Trustee of the bankruptcy estate of AMCO Products, Inc. to compel the turnover of certain property held by the defendant, to the bankruptcy estate.
On October 1, 1976 the debtor corporation and defendant set up, via a "Dealer Agreement", a dealer reserve account—# XXX-XXXXX-XXX. Funds were deposited in this account, without the right of withdrawal, for the purpose of charge off or loss reserve, by Commerce Bank against accounts, or dealer paper, purchased by the Bank at a discount from the debtor, which were determined to be uncollectible.
Upon default by the consumer, the Commerce Bank would debit said account to make up for the loss. While the dealer paper was outstanding, there was no right of withdrawal by the debtor corporation. Further, if the reserve account fell below 5% of the aggregate balance of all contracts outstanding, the debtor corporation had to make deposits to replenish the account.
At the time of the filing of the bankruptcy case October 12, 1979, $32,162.52 remained in this account.
The Trustee argues that the monies in this account are property of the estate and also all interest that has accrued from such. The Trustee prays for an order directing the defendant to turnover this property.
The Bank contends that it is not the property of the debtor and would not become the property of the debtor until all the conditions of the reserve agreement were met. The Bank contends that these conditions cannot be met prior to the termination of all notes and contracts purchased by the Bank from the debtor.
The Bank also claims a security interest in the fund, and a right of set-off as losses occur on the accounts purchased from the debtor.
As the result of a pre-trial conference it was determined that an evidentiary hearing was not necessary because of the stipulations filed. The parties have submitted briefs and reply briefs on the following issues:
Prior to addressing these issues, another issue must be addressed. The defendant argues that it applied for a lifting of the automatic stay, and that the plaintiff failed to oppose the defendant's application, nor attempted to provide the defendant with a hearing. The defendant thus argues that the plaintiff's lack of action estops him from claiming the stay is not lifted and the relief sought has not been granted by operation of law.
The defendant's request was found in the prayer of its answer. A request for lifting of the automatic stay under 11 U.S.C. § 362 must be explicit, not camouflaged in the body of a party's prayer. Further, no specific grounds were enumerated in the pleading in regard to such request. The automatic stay was not lifted by operation of law, based on the manner in which the relief was requested. This issue is found against the defendant.
The first major issue to be addressed is whether the dealer account is property of the debtor.
The agreement in question appears to grant the Bank a security interest in the account in question. The "Dealer Agreement" at paragraph 3 states:
The Bankruptcy Code follows the "strong arm" clause of the former Act by giving the trustee the rights and powers of a judicial lien creditor as of the date of bankruptcy. 11 U.S.C. § 544(a)(1). Specifically, the trustee may avoid any transfer of property or obligation incurred by the debtor that would be avoidable by a creditor on a simple contract who, at the time of the commencement of the case, extends credit and obtains a judicial lien on all of the debtor's property, whether or not such a creditor exists.
Pursuant to Article 9 of the Uniform Commercial Code, (U.C.C. § 9-301(1)(b)), a judicial lien creditor has priority over an unperfected security interest.
The defendant contends that the Trustee cannot reach these funds because the defendant is a perfected secured party in physical possession of the security.
§ 400.9-102 R.S.Mo. 1969 provides that Article 9 of the U.C.C. applies to any transaction, regardless of form, intended to create a security interest in personal property.
However, even though a transaction falls within the scope of § 9-102, it still may be excluded from Article 9 as a matter of public policy. A laundry list of express exclusions is set forth in § 400.9-104, which states in pertinent part:
Comment # 7 of U.C.C. 9-104 reiterates this fact.
This Court agrees with the recent case of Duncan Box & Lumber Co. v. Applied Energies, Inc., 29 U.C.C. 1731, 270 S.E.2d 140 (W.Va.1980) that the U.C.C. is inapplicable to the transfer of a deposit account. The question presented to the West Virginia Supreme Court of Appeals was whether under the U.C.C. a bank could obtain a security interest in a depositor's reserve account which would prevail over a suggested execution issued by a judgment creditor of the depositor.
In that case, the First Huntington National Bank hereinafter Bank agreed to finance, through a deed of trust, the purchase by Applied Energies, Inc. hereinafter Debtor of a tract of land. The purpose of the loan was to subdivide the tract into lots for mobile home dwellers. Debtor sought further financing from the Bank for resale of the lots to individual purchasers. The proposal was that Debtor would assign the purchaser's promissory notes, secured by deeds of trust, to the Bank.
The Bank agreed to this arrangement, but insisted on security in the form of a "reserve account" to be controlled by the Bank which would, in effect, guarantee the Bank the right to a reserve of 25% of the unpaid balance of the outstanding notes. The rules governing the reserve account were established by written agreement between the Bank and the Debtor.
Two creditors obtained judgments against the Debtor and proceeded by suggestee execution to attach the reserve account. The Bank asserted that the Debtor "had no interest or property in the reserve account" and that the Bank "was not in possession of any property belonging to the Debtor."
One creditor argued that the Bank had no lien because it failed to file a financing statement under 9-302 of the U.C.C. The Bank retorted that possession was sufficient to secure its interest in the collateral.
The Court, however, found that their arguments missed the critical point of the case. Citing § 9-104(k) and Comment #7 following that section, the Court stated:
Duncan at 1735
Citing Walton v. Piqua State Bank, 204 Kan. 741, 754, 466 P.2d 316, 327, 7 U.C.C. Rep. 1067 (1970) which involved a purported pledge of funds in a passbook savings account. That court, after stating the statutory exceptions, acknowledged the inapplicability of the U.C.C.:
"Hence, no provisions of the Uniform Commercial Code are applicable to the question presented, and we refer to our decisions and to the Restatement of the Law, Security, as they apply to common law."
For the most part, however, certificates of deposit have been held to be not intended for exclusion under Article 9. Wightman v. American National Bank of Riverton, 610 P.2d 1001, 29 U.C.C.Rep. 251 (Wyo.1980); Citizens National Bank of Orlando v. Bornstein, 374 So.2d 6, 27 U.C.C.Rep. 242 (Fla. 1979); Southview Corp. v. Kleberg First National Bank, 512 S.W.2d 817, 15 U.C.C. Rep. 408 (Tex.Civ.App.1974); and First National Bank in Grand Prairie v. Lone Star Life Ins. Co., 524 S.W.2d 525, 17 U.C.C.Rep. 835 (Tex.Civ.App.1975).
In fact, the 1972 version of § 9-104(l), which has not yet been adopted in Missouri, expressly defines the term "deposit account" to exclude certificates of deposit.
Likewise, the case law—Morris Plan Co. of St. Joseph v. Broadway National Bank of Kansas City, 598 S.W.2d 557, 28 U.C.C.Rep. 1112 (Mo.App.1980); Realty Growth Investors v. Commercial and Industrial Bank of Memphis, Tennessee, 370 So.2d 297, 26 U.C. C.Rep. 1259 (Ala.Civ.App.1979); and Domain Industries, Inc. v. First Security Bank & Trust Co., 230 N.W.2d 165, 16 U.C.C.Rep. 1417 (Iowa 1975) indicates that § 9-104(k) does not apply to bank deposits which are the proceeds of collateral.
Again, the 1972 version of § 9-104(l) makes it clear that deposit accounts which constitute proceeds under § 9-306 are not included.
Since the U.C.C. is not applicable to the situation before this Court, and there appears to be no current...
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