In re Handy, Bankruptcy No. 82-01067-R
| Citation | 41 BR 172 |
| Decision Date | 12 June 1984 |
| Docket Number | Adv. No. 84-0077-R.,Bankruptcy No. 82-01067-R |
| Court | United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Eastern District of Virginia |
| Parties | In re Homer W. HANDY, Jr., Debtor. Herman F. BLAKE, Sr., Plaintiff, v. Homer W. HANDY, Jr., Defendant. |
Robert S. Ganey, Hanover, Va., for plaintiff.
Robert E. Kane, Jr., Richmond, Va., for defendant.
This matter came before the Court upon the filing by the plaintiff, Herman F. Blake, Sr., of a complaint for setoff and for an injunction against the defendant, Homer W. Handy, Jr., from collecting his judgment. The parties submitted the matter to the Court on briefs and after consideration thereof, this Court makes the following findings of fact and conclusions of law.
On May 26, 1982, the plaintiff, Herman F. Blake, Sr. (Blake) obtained a judgment in the Circuit Court of the City of Richmond, Virginia against the defendant, Homer W. Handy, Jr. (Handy), for $14,266.30 on a note signed by Handy and payable to Blake. Also, on May 26, 1982 Blake obtained a judgment against Handy for $1,276.61 on a second note signed by Handy and payable to Blake. In the same action Handy recovered a judgment of $6,300.00 based on work performed for Blake prior to the time Handy was discharged from employment by Blake.
On July 1, 1982 Handy filed for relief pursuant to Chapter 7 of the Bankruptcy Code. After Handy filed his bankruptcy petition Blake instituted an adversary proceeding in this Court alleging that obligations owed to him were nondischargeable pursuant to 11 U.S.C. § 523 (a)(2). On December 19, 1983 this Court, 35 B.R. 912, determined the judgments recovered by Blake against Handy were discharged in bankruptcy.1
Prior to bankruptcy Handy had docketed the judgment he obtained against Blake in Hanover County, Virginia, thereby creating a judgment lien on any real property owned by Blake in Hanover County. Said judgment lien now impairs Blake's ability to dispose of the real property owned by him in Hanover County. Consequently, Blake filed the complaint at issue here to determine that the judgment recovered by Handy, which has been docketed in Hanover County, should be offset against Blake's larger judgment obtained in the same proceeding on May 26, 1982, which, however, has now been discharged in bankruptcy.
Pursuant to § 553 of the Bankruptcy Code, creditors have certain rights to offset obligations owed by them to the debtor against obligations owed to them by the debtor that arose before the commencement of the case. Specifically, 11 U.S.C. § 553 provides as follows:
Setoff will be denied where the debt was incurred for the purpose of obtaining the right of setoff or where the claim was acquired (other than from the bankrupt) during the 90 days preceding the case while the debtor was insolvent. Conversely, the Code recognizes the potential injustice in compelling a creditor who files a claim to accept, in the vast majority of cases, no distribution, and in those cases where dividends are paid, less than full payment on its claim while at the same time being required to pay fully its obligation to the estate. Colliers on Bankruptcy ¶ 553.02 at 553-10 (15th ed. 1983). In permitting setoff, however, the Code has hedged the privilege with certain stated qualifications so as to prevent abuse. See 11 U.S.C. § 553(a)(1), (2), & (3).
Assuming that none of the exceptions apply in the instant matter, there appears to be no reason why setoff should not be granted in this matter. Neither the Code nor the Rules of Bankruptcy Procedure provide a timetable by which setoff must be accomplished. Thus, there appears to be nothing precluding a setoff after a case has been closed. Moreover, as a court of equity, this Court may prevent the injustice that would result to the plaintiff in this matter if setoff was not permitted. Not only would it be unfair for the debtor, Handy, now to enforce its judgment against Blake while Blake's larger judgment has been discharged in bankruptcy, but also if Handy did have an obligation that was immune from setoff then that cause of action against Blake would be property of the debtor's estate and should have been exercised by the trustee for the benefit of all creditors.2
The debt owed to Handy by Blake is based upon an action for quantum meruit which was brought in the Circuit Court for the City of Richmond, Virginia. Judgment on that action was obtained on May 26, 1982. Handy's obligations to Blake were based on promissory notes made by Handy to Blake. Blake similarly obtained judgments on May 26, 1982. In that the obligations owed to each other may be collected by each other in their own right against the other in their individual capacities, mutuality exists in the present matter. See In re Virginia Block Co., 5 C.B.C.2d 317 (Bkrtcy.W.D.Va.1981). Having found that the parties had mutual debts, the Court may now consider if any exception exists to preclude the requested setoff.
Handy has argued that Blake may not obtain setoff in this matter because an exception to the general setoff provisions of § 553 applies in the instant matter. Specifically, Handy argues that § 553(a)(3) prevents the plaintiff from exercising setoff. Section 553(a)(3) is an exception to the setoff provisions provided Handy can demonstrate that the debt owed him by Blake was incurred by Blake 1) after 90 days before the date of filing of the petition; 2) was incurred by the plaintiff while the debtor was insolvent; and 3) was incurred by the plaintiff for the purpose of obtaining a right of setoff against the debtor. See 11 U.S.C. § 553(a)(3). Handy must establish each and every requirement of 11 U.S.C. § 553(a)(3) to fall within the exception.
The work done by Handy for Blake that served as a basis for Handy's quantum meruit action was performed in 1978. Thus, the obligation apparently was incurred well before the 90 day period prior to filing...
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