In re Dexter Buick-GMC Truck Co.
| Decision Date | 18 January 1980 |
| Docket Number | Bankruptcy No. BK-79-146. |
| Citation | 2 BR 247 |
| Parties | In re DEXTER BUICK-GMC TRUCK COMPANY, Debtor. BRUNSWICK AGENCY, INC., Plaintiff, v. James L. TAFT, Jr., Receiver, Defendant. |
| Court | U.S. Bankruptcy Court — District of Rhode Island |
John Moore, Providence, R.I., for plaintiff.
Taft, McSally & McKenna, Providence, R.I., for defendant.
Heard on September 5, 1979, on the complaint of Brunswick Agency, Inc. to reclaim certain funds in the possession of the Debtor.
The relevant facts, not in dispute, are as follows: On February 22, 1979, Brunswick Agency, Inc. entered into a "Credit Insurance Servicing Agreement" with Dexter Buick, the Debtor corporation. By the terms of this Agreement, Brunswick was to issue insurance policies which would cover installment notes executed by purchasers of automobiles from Dexter, and Dexter was to act as a service representative of Brunswick. The Agreement provided that all premiums collected by Dexter were to be turned over to Brunswick, except for an expense reimbursement of 35% on life insurance and 45% on accident and health insurance policies.
Between the time of the Agreement and Dexter's Chapter XI petition (approximately six weeks), Dexter collected $5,767.66 in premiums on policies issued by Brunswick. Dexter placed all money received from these payments into its general account at the Newport National Bank. At the time of the commencement of the Chapter XI proceeding on May 9, 1979, no payments of any portion of these premiums had been made to Brunswick by Dexter.
Brunswick contends that the insurance premiums received by Dexter were held in trust, that these funds did not pass into the Debtor's estate, and that consequently Brunswick is entitled to these trust funds as beneficiary. See, American Service Co. v. Henderson, 120 F.2d 525 (4th Cir. 1941). The receiver's position is that the Agreement between Dexter and Brunswick was merely an employment contract, and that the status of the plaintiff is therefore that of a general creditor.
A requisite for an express trust is an intention to create the trust, which must be established by clear and convincing evidence. Supra, 272 A.2d at 688. The intention to create a trust can be found in the acts of the parties and from the circumstances surrounding its creation. See, Concannon v. Concannon, 116 R.I. 323, 356 A.2d 487, 491 n. 2 (1976); Lux v. Lux, 109 R.I. 592, 288 A.2d 701, 704 (1972).
In this case several factors indicate that the relationship between Dexter and Brunswick constitutes an express trust. The Agreement provides that all money collected for insurance premiums was to be held in "trust, separate and distinct from other funds." (Plaintiff's Exhibit No. 11). While there is nothing magical in the use of the word "trust" in any agreement, see Lord's Inc. v. Maley, 356 F.2d 456 (7th Cir. 1965), the evidence clearly supports the existence of an express trust in this case. The undisputed testimony of John Crowley, Brunswick's president, is that he specifically asked if Dexter would set up a separate escrow account for insurance, and that Dexter agreed to do so. Crowley also testified that under normal circumstance, that is, had the relationship lasted longer, he would have followed up on Dexter's obligation to establish the separate account. We find as a fact that the testimony of John Crowley is credible and accurately describes the nature of the relationship. Because less than one month elapsed between April 10, 1979 when the first policy was issued through the Debtor, and May 9, 1979 when the petition for an arrangement was filed, we must conclude that insufficient time elapsed here to find that Brunswick's failure to monitor Dexter's procedures constitutes a waiver of the requirement to segregate trust funds.
There is no evidence that Crowley knew or had reason to believe that Brunswick's monies had been placed in the Debtor's general account, nor that Brunswick had reason to believe that the Debtor would fail to comply with the Agreement. To the contrary, the evidence indicates that during the brief period involved, Brunswick made every effort, both in the explicit language of the Agreement and in its personal dealings with the Debtor, to insure that a separate account was established.
Various other provisions in the Agreement also support the contention that a trust was created. The Agreement contained no provision for interest in the event of the Debtor's late payment, nor were policies issued in the name of the Debtor. All policies were issued on certificates bearing the name of the company from whom Brunswick obtained the master policy. There was no understanding that funds could be commingled, and the contract specifically prohibited Dexter from doing so. As such, the facts of this case can be easily distinguished from several other cases where courts refused to find an implied or express trust. See, e.g., Carlson, Inc. v. Commercial Discount Corp., 382 F.2d 903 (10th Cir. 1967); Lord's Inc. v. Maley, 356 F.2d 456 (7th Cir. 1965); In re Martin's, 11 F.Supp. 99 (E.D.N.Y., 1935).
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