In re Murray
Decision Date | 08 February 1983 |
Docket Number | Adv. No. 382-0298.,Bankruptcy No. 382-00586 |
Citation | 27 BR 445 |
Parties | In re Laverne James MURRAY, Eva Jean Murray, Debtors. Robert H. WALDSCHMIDT, Trustee, Plaintiff, v. FORD MOTOR CREDIT COMPANY, Laverne James Murray, and Eva Jean Murray, Defendants. |
Court | U.S. Bankruptcy Court — Middle District of Tennessee |
Robert H. Waldschmidt, Cosner, Waldschmidt & Crocker, Nashville, Tenn., Trustee.
Kevin J. Jones, Loewenstein, Ziegler & Buffaloe, Nashville, Tenn., for Ford Motor Credit Co.
This matter is before the court on the trustee's complaint to avoid a preferential transfer. The trustee alleges that the debtors' transfer of a security interest in an automobile is an avoidable preference. Ford Motor Credit Company denies that the transfer was preferential maintaining that it was not made on account of an antecedent debt, and that the transfer was a "contemporaneous exchange" excepted from the trustee's avoiding powers. After review of the entire record and the applicable authority, the court concludes that the debtors' transaction with Ford Motor Credit Company created an avoidable preference. Furthermore, the "contemporaneous exchange" exception is not available to expand the 10-day perfection period specifically provided for enabling loans and does not protect the transfer from avoidance. Accordingly, the proceeds from the sale of the automobile must be turned over to the trustee for administration.1
The following constitute findings of fact and conclusions of law required by Rule 752 of the Federal Rules of Bankruptcy Procedure.
The facts are not disputed. The debtors, Laverne James Murray and Eva Jean Murray, purchased a 1981 Lincoln Mark VI automobile from Preston Lincoln-Mercury on March 7, 1981. A certificate of title was issued by the Tennessee Department of Motor Vehicles noting Ford Motor Credit Company ("FMCC") as first lienholder and Laverne Murray as owner.
The Murrays experienced numerous problems with the automobile. After unsuccessfully attempting to remedy the defects, the dealership offered to substitute a 1981 Cadillac Fleetwood Brougham. The Murrays consented and FMCC approved the substitution under the terms of the original loan arrangement. On January 22, 1982, the Murrays executed a new security agreement pledging the Cadillac as collateral. The car was delivered to the Murrays at the latest on January 26, 1982.2 On January 25, 1982, the dealership employee responsible for obtaining lien notations on certificates of title resigned. A replacement was hired on February 1, 1982 and began working February 8, 1982. The new clerk applied for a certificate of title noting FMCC as lienholder on February 9, 1982, 18 days after the grant of the security interest and at least 14 days after delivery of the car.
On February 26, 1982, the debtors filed a petition under Chapter 7 of the Bankruptcy Code. The debtors listed FMCC as a secured creditor holding a security interest in the automobile. FMCC filed a proof of claim evidencing secured indebtedness of $21,894.34. Mr. Murray surrendered the automobile to FMCC.
The trustee subsequently initiated an adversary proceeding to set aside FMCC's security interest as a preferential transfer.
The Bankruptcy Code prescribes six elements which must be proven before a transfer is preferential: (1) a transfer of property of the debtor; (2) to or for the benefit of a creditor; (3) for or on account of an antecedent debt; (4) made while the debtor was insolvent; (5) made within 90 days before the date of the filing of a petition; (6) that enables the creditor to receive more than it would have received if the transfer had not been made and the case were a liquidation case under Chapter 7. 11 U.S.C.A. § 547(b) (West 1979). The burden of proof is on the trustee to demonstrate each and every requirement, and if the proof is lacking on any element, the transfer may not be avoided. Eggleston v. Third National Bank, 19 B.R. 280, 282 (Bkrtcy.M.D.Tenn.1982). See also Steel Structures, Inc. v. Star Manufacturing Co., 466 F.2d 207, 216 (6th Cir.1972); 2 Norton Bankr.L. & Prac. § 32.12 at 37 (1981).
The existence of five of the six preference elements is not at issue. FMCC concedes that a transfer of the debtors' property occurred, that the transfer benefited FMCC and allowed FMCC to receive more than it would have under the provisions of Chapter 7 if the transfer had not been made and that the transfer occurred within 90 days before bankruptcy during which time the debtor is presumed to be insolvent.3
FMCC disputes the trustee's contention that the transfer was made on account of an antecedent debt. FMCC acknowledges that the debt in question was incurred when the Murrays executed the security agreement on January 22, 1982. The issue is when did the "transfer" occur for purposes of the preference calculation.
Under the Bankruptcy Code, the date of transfer is determined with reference to the date a security interest is "perfected." 11 U.S.C.A. § 547(e)(2).4 The transfer of a security interest in personal property (here, an automobile) is perfected when a creditor cannot acquire a judicial lien that is superior to the lien of the transferee. 11 U.S.C.A. § 547(e)(1)(B) (West 1979). Under Tennessee law, a creditor cannot obtain a superior judicial lien on a motor vehicle once the transferee has satisfied the requirements for recording the lien on the certificate of title as set out in Tenn.Code Ann. § 55-3-101, et seq. (1980 repl. vol.). FMCC fulfilled these requisites when the Department of Motor Vehicles recorded the lien on debtors' automobile on February 9, 1982. Thus, for purposes of the preference statute, the "transfer" of the debtors' property to FMCC took place on February 9, 1982.
FMCC argues that the "transfer" took place before February 9 because no judicial lien creditor could have acquired a superior lien between January 22 (or January 26) and February 9 since FMCC's security interest was continuously effective and relates back to the date the security agreement was signed. FMCC relies on Tenn. Code Ann. § 47-9-301(2) which provides:
If the secured party files with respect to a purchase money security interest before or within twenty (20) days after the collateral comes into possession of the debtor, he takes priority over the rights of a transferee in bulk or of a lien creditor which arise between the time the security interest attaches and the time of filing.
FMCC is correct that it may have priority over any other party asserting a lien under state law. However, timely perfection under state law does not necessarily provide protection from the creation of a possible preference under the Bankruptcy Code.
Although Tennessee law is appropriate for determining the date of perfection, the date of transfer is governed by the provisions of § 547. Ford Motor Credit Co. v. Ken Gardner Ford Sales, Inc., 10 B.R. 632, 643 (Bkrtcy.E.D.Tenn. 1981).5 Section 547 provides that if the security interest is perfected within 10 days after the transaction took effect between the parties, then the date of the transaction is considered to be the date of transfer for determining whether a preference has occurred. 11 U.S.C.A. § 547(e)(2)(A) (West 1979) (See note 4 supra.) If a security interest is perfected after 10 days, however, the transfer is considered to be made on the date of perfection. For purposes of § 547, February 9, 1982, the date FMCC's security interest was perfected, is the date of transfer. The transfer, coming 18 days after the creation of the debt and at least 14 days after delivery of the car, is outside the relation back period provided under the Bankruptcy Code and is, therefore, on account of an antecedent debt.
Finding all the operative elements of a preference present in the instant case, FMCC's security interest is avoidable unless the transaction comes within one of the savings provisions delineated in § 547(c). The trustee argues that the only exception available to FMCC is 11 U.S.C.A. § 547(c)(3) (West 1979). Section 547(c)(3) provides:
This provision has come to be referred to as the "enabling loan" exception. There is little question that the transfer involved in the present case is an enabling loan. The security interest was taken to secure new value at the time the agreement was signed, was taken to enable the debtor to obtain the automobile, and actually resulted in acquisition of the automobile.6 However, because FMCC did not perfect its security interest within the prescribed 10 days, § 547(c)(3) does not protect the transfer from avoidance.
FMCC contends, however, that its security interest is protected by 11 U.S.C.A. § 547(c)(1) which provides:
This section has come to be referred to as the "contemporaneous exchange" exception. The courts have...
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