In re Frazier
| Decision Date | 08 October 1991 |
| Docket Number | Bankruptcy No. 90-11013 M. |
| Citation | 136 BR 199 |
| Parties | In re Margaret FRAZIER, Debtor. |
| Court | U.S. Bankruptcy Court — Western District of Arkansas |
Andree L. Roaf, Little Rock, Ark., for debtor.
A.L. Tenney, Trustee, N. Little Rock, Ark., for Sam Antoon.
Teresa Wineland, El Dorado, Ark.
On January 23, 1990, Margaret Frazier (debtor) filed a voluntary petition for relief under the provisions of chapter 13 of the United States Bankruptcy Code. The debtor's schedules reflect assets totaling $63,106.64. The assets include two certificates of deposit (CDs) in the principal sums of $1,000.00 and $9,000.00. The assets also include $40,550.00 in property that the debtor claims as exempt, consisting of the debtor's homestead valued at $40,000.00, household furnishings valued at $500.00, and wearing apparel valued at $50.00. The debtor's secured claims total $45,733.59, including the claim of First National Bank of El Dorado (FNB) in the amount of $34,580.91.1 The schedules reflect unsecured claims totaling $45,421.04, including the claim of Sam J. Antoon (Antoon) in the amount of $10,435.87.
On February 9, 1990, the debtor filed a proposed plan of reorganization. Antoon and the standing chapter 13 trustee (trustee) filed objections to the debtor's plan, and a confirmation hearing was held on May 24, 1990. The Court took the matter under advisement.
The matter before the Court is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(L), and this Court has jurisdiction to enter a final judgment in this cause.
The debtor is a widow and is supporting her daughter, Cathy Frazier, who is attending college. The debtor owns and operates a beauty shop in Union County, Arkansas. The equipment and supplies in the beauty shop are valued in the debtor's schedules at $450.00.
FNB is a creditor of the debtor whose debt is evidenced by five promissory notes. One note has an unpaid balance of $24,450.00 and is secured by a first lien in the debtor's homestead. A witness for FNB estimated that "probably more than $24,000.00 in equity exists in the debtor's homestead." Three of the other five promissory notes totaling $11,930.28 have unpaid balances of $5,033.76, $3,451.45, and $3,445.07, respectively. Each of these three notes matured since the filing of this bankruptcy. The fifth promissory note is fully secured by the debtor's automobile.
FNB has possession of the debtor's two CDs in the principal sums of $1,000.00 and $9,000.00. The CDs were issued in the names of "Richard Frazier or Margaret Frazier or Cathy Frazier — either or survivor." Richard Frazier, the debtor's husband and Cathy Frazier's father, now deceased, was the source of the funds used to purchase the CDs. The debtor pledged the $1,000.00 CD as collateral for the three promissory notes totaling $11,930.28. The $9,000.00 CD is not pledged as collateral on any of the debtor's notes with FNB, and FNB has possession of the $9,000.00 CD only as a convenience to the debtor. The debtor uses the interest income from the CDs to defray living expenses. Although FNB has a right of setoff, it has opted not to exercise its right in order to assist the debtor in her reorganization efforts.
On July 7, 1988, the Circuit Court of Union County, Arkansas, entered a judgment in favor of Antoon against the debtor in the amount of $9,500.00. At Antoon's request, the Union County Circuit Clerk issued a writ of execution, which was received by the Union County Sheriff on December 22, 1989. The bankruptcy petition was filed January 23, 1990, and the Sheriff returned the writ of execution on January 29, 1990, without levying on any of the debtor's property.
Antoon objects to confirmation of the debtor's proposed plan on the basis that his claim is misclassified as an unsecured claim. Antoon argues that his claim should be treated as a secured claim because he held an execution lien in the debtor's bank deposits on the date the petition was filed.
Deposits, including certificates of deposit, are defined as:
not only deposits payable on demand and subject to check, but deposits not subject to check, for which certificates, whether interest-bearing or not, may be issued, payable on demand, or on certain notice, or at a fixed future time.
Black's Law Dictionary 438 (6th ed. 1990), quoting Jones v. O'Brien, 58 S.D. 213, 235 N.W. 654, 659 (1931). Money deposited by a customer with a banking institution as a general deposit is not a loan to the bank, even though legal title to the money passes to the bank and a debtor-creditor relationship is created. Lasley v. Bank of Northeast Arkansas, 4 Ark.App. 42, 627 S.W.2d 261 (1982); Warren v. Nix, 97 Ark. 374, 135 S.W. 896 (1911). The property interest which remains vested in the depositor is in the nature of a chose in action, which is an equitable interest. See 11 U.S.C. § 541; Miller v. Wells Fargo Bank Int'l Corp., 406 F.Supp. 452 (S.D.N.Y.1975), aff'd, 540 F.2d 548 (2d Cir.1976), cited in Wightman v. American Nat'l Bank of Riverton, 610 P.2d 1001 (Wyo.1980); In re Estate of Shoptaugh, 482 N.E.2d 1142 (Ind.Ct.App. 1985); Walton v. Piqua State Bank, 204 Kan. 741, 466 P.2d 316 (1970); Gallagher v. Rogan, 322 Pa. 315, 185 A. 707 (1936); 4 Collier on Bankruptcy ¶ 541.105 (15th ed. 1989); 30 Am.Jur.2d Executions § 136 (1967).
At common law, an equitable property interest of a judgment debtor was not subject to seizure and sale by execution. Van Ness v. Hyatt, 38 U.S. (13 Pet.) 294, 10 L.Ed. 168 (1839); Pennington's Ex'r v. Yell, 11 Ark. (6 Eng.) 212 (1850); 30 Am. Jur.2d Executions § 136 (1967); 33 C.J.S. Executions § 125 (1942). However, this common law rule was modified by statute during the October, 1837, session of the Arkansas General Assembly.
On March 3, 1838, the legislature approved a statute dealing with executions, which included some equitable interests in property. This statute provided in relevant part as follows:
The following described property shall be liable to be seized and sold under any execution upon any judgment, order or decree of a court of record: First, all goods and chattels not hereinafter exempted. Second, all improvements on the public lands of the United States. Third, all slaves, and other rights and shares in the stock of any bank, insurance company, or other incorporation. Fourth, any current gold and silver coin, which shall be returned as so much money collected, without exposing the same to sale. Fifth, any bill or other evidence of debt issued by any moneyed corporation of this State or any other State.
Ark.Rev.Stat., ch. 60, sec. 23 (1837). The lien of a writ of execution exists from the date the writ is delivered to the proper sheriff for execution. Ark.Code Ann. § 16-66-112 (1987); Consol. Underwriters of South Carolina Ins. Co. v. Bradshaw, 136 F.Supp. 395 (W.D.Ark.1955); Charlesworth Pontiac Co. v. Walker, 238 Ark. 940, 385 S.W.2d 797 (1965); Hanover & Co. v. Casey, Adm'r, 26 Ark. 352 (1870); Baldwin v. Johnston, 8 Ark. (3 Eng.) 260 (1848).
Section 16-66-201(5) of the current execution statute, which is at issue in this case, contains language similar to the original statute by subjecting the following property to seizure and sale pursuant to a writ of execution:
Any bill or other evidence of debt issued by any moneyed corporation of this state or any other state, belonging to any person against whom an execution shall be issued, at the time the writ is delivered to the officer to be executed, or any time thereafter.
Ark.Code Ann. § 16-66-201(5) (1987).
Antoon argues that the debtor's interest in her bank deposits is the equivalent of a bill of debt issued by a moneyed corporation. This argument is without merit. Black's Law Dictionary defines "bill of debt" as "an ancient term including promissory notes and bonds for the payment of money." Black's Law Dictionary 165 (6th ed. 1990). The term "bill of debt" does not describe any modern commercial paper. Professor Williston points out that "the law of bills and notes has its historical basis in the so-called law merchant, that is, the customs of international trade as they were developed during the late Middle Ages." 10 Williston on Contracts § 1135 (3d ed. 1967). In a treatise written in 1686, the author described a bill of debt and provided an appropriate form to be followed by a merchant. The description and form were as follows:
Gerard Malynes, Consuetudo, vel, Lex Mercatoria: or, the Ancient Law-Merchant, First Part, 71, 74 (Abingdon, England, Professional Books Ltd., 1981) (1686). A bill of debt appears to be the ancient predecessor of a promissory note or a corporate debenture,2 not a bank account....
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