IN RE SURPLUS FURNITURE LIQUIDATORS
| Decision Date | 18 October 1995 |
| Docket Number | Bankruptcy No. 95-11506C-7G. |
| Citation | 199 BR 136 |
| Parties | In re SURPLUS FURNITURE LIQUIDATORS, INC. OF HIGH POINT, d/b/a Furniture From High Point, Debtor. |
| Court | U.S. Bankruptcy Court — Middle District of North Carolina |
COPYRIGHT MATERIAL OMITTED
Kathy Vest, pro se.
Karen Vestal, pro se.
Tamara Barrvecchia, pro se.
Marion G. Follin, III, Greensboro, NC, for Leigh Dutton.
Warren R. Lackey, High Point, NC, for debtor.
William P. Miller, Alan B. Powell, High Point, NC, for High Point Bank.
Debtor filed a motion in this case seeking court approval of the sale by Debtor of certain furniture inventory in the possession of Debtor and High Point Bank & Trust Company ("High Point Bank"). Debtor seeks to sell the furniture inventory and to transfer liens to proceeds. Objections to the proposed sale were filed by various customers of Debtor who had paid for furniture which was still in the possession of Debtor when this case was filed. The customers who filed objections include Leigh Dutton, Kathy Vest, Karen Vestal and Tamara Barrvecchia (the "objecting customers"). The essence of the objections is that Debtor does not own the furniture which these customers have paid for and is not entitled to sell that furniture. Instead, the objecting customers maintain that they are entitled to recover possession of the furniture from Debtor. This case came before the court on August 29, 1995, for hearing upon these objections. Having considered the evidence offered by the parties, the arguments of counsel and the authorities submitted by the parties following the hearing, the court finds that the objections filed by the customers must be overruled and denied and the Debtor permitted to sell the furniture claimed by the objecting customers free and clear of liens. The findings and conclusions of the court pursuant to Bankruptcy Rule 7052 are set forth below.
Prior to June of 1995 Debtor was engaged in the retail furniture business. Debtor had a place of business and showroom on Main Street in High Point, North Carolina, and in Raleigh, North Carolina. Debtor promoted itself as offering furniture to the general public at discount prices. Debtor's showrooms were open to the general public prior to June of 1995 and Debtor maintained an inventory of furniture in its showrooms which was on display and offered for sale to customers who visited Debtor's showrooms. Some items of furniture were sold off the showroom floor to customers and in some instances Debtor ordered furniture for its customers from the manufacturer of the furniture selected by the customer. In its furniture sales, including the transactions involving the objecting customers, Debtor utilized a printed form which was filled out when customers purchased or ordered furniture from Debtor. This form was entitled "Sales Order" and set forth certain "Terms and Conditions of Sale" which appear on the back of the form. One of the terms on the back of the form is entitled "Delivery by Authorized Carrier" and provides that upon completion of the order The form further provides that if the furniture is damaged in transit Debtor is to repair or replace the furniture without expense to the customer.
Prior to any of the transactions involving the objecting customers, Debtor obtained several loans from High Point Bank. In connection with obtaining these loans Debtor executed loan documents purporting to give High Point Bank a security interest in Debtor's assets. Under the loan documents from Debtor, High Point Bank claims a first lien upon most of Debtor's assets, including Debtor's entire inventory.
During the first week in June of 1995, following a default by Debtor with respect to its loans, High Point Bank took control over all of the inventory located at Debtor's locations in High Point, including the furniture claimed by the objecting customers. Shortly thereafter, this bankruptcy case was filed.
Although the objecting customers selected and paid for their furniture at different times, the facts surrounding each purchase are essentially the same. In each instance, the objecting customer selected one or more items of furniture at Debtor's showroom and paid for the furniture. In each instance, Debtor "tagged" the furniture as having been sold to the objecting customer. However, Debtor also retained possession of the furniture in each instance in order to either deliver the furniture to the customer locally or to ship the furniture to the customer by common carrier in those instances in which the customer's residence was not located close by. At the time that High Point Bank took possession of Debtor's inventory, the furniture "purchased" by the objecting customers was still being held by Debtor awaiting delivery to the customers by Debtor or by a carrier selected by Debtor. The furniture which is the subject of the objections now before the court is readily available from other sources in North Carolina.
Section 363(b)(1) of the Bankruptcy Code gives the Trustee the authority to sell property of the estate after notice and a hearing. Property of the estate includes "all legal or equitable interests of the Debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). The first point of disagreement between the parties is whether the furniture in question is property in which Debtor had an equitable or legal interest. Debtor argues that it held legal title to the furniture at the time of the filing of the petition and that the furniture is property of the estate.
Each of the transactions involving Debtor and the objecting customers was a transaction in goods governed by Article 2 of the Uniform Commercial Code. See N.C.Gen.Stat. § 25-2-102. The question of who holds title to the furniture, and therefore the question of whether title to the furniture is included as property of Debtor's estate, is controlled by N.C.Gen.Stat. § 25-2-401. Because the objecting customers and Debtor had no agreement as to the passage of title to the furniture, "title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods . . . and in particular . . . if the contract requires delivery at destination, title passes on tender there." N.C.Gen.Stat. § 25-2-401(2). The contracts in this case require Debtor to deliver the furniture in the buyers' homes, therefore title to the furniture would pass from Debtor to the customers on tender of the furniture to the customers in their homes. Because the furniture remained in Debtor's possession and had not been tendered to the objecting customers in their homes when this case was filed, Debtor retained title to the furniture. Thus, Debtor had legal title and possession of the furniture. Under the sales contract the entire risk of loss or damage to the property was upon Debtor. If the furniture had been destroyed by fire or other hazard or lost or damaged in transit Debtor was obligated to repair or replace the furniture. Therefore, at the time that this case was filed legal title and ownership of the furniture was vested in Debtor and the furniture constitutes property of the estate of Debtor within the meaning of § 541(a)(1).
The objecting customers assert that they have a "special property" in the furniture under N.C.Gen.Stat. § 25-2-501. While this may be correct, it does not follow necessarily that they are entitled to possession of the furniture. By virtue of N.C.Gen.Stat. § 25-2-501(1), Pursuant to the agreements between the parties, the furniture which the objecting customers seek to recover was tagged and identified as theirs by Debtor at the time they paid for it or soon afterwards. Therefore, the goods are identified and each of the objecting customers has a special property in the furniture which they claim.1
The significance of a buyer having a special property in goods in the possession of a seller derives from N.C.Gen.Stat. § 25-2-502 and § 25-2-716(3). N.C.Gen.Stat. § 25-2-502 provides in pertinent part that "a buyer who has paid . . . all of the price of goods in which he has a special property . . . may . . . recover them from the seller if the seller becomes insolvent within ten days after receipt of the first installment on their price." N.C.Gen.Stat. § 25-2-502(1).2 The only objecting customer who has sought to invoke this provision is Leigh Dutton, who delivered her check for the furniture to Debtor on June 3, 1995, which check was honored by her bank on June 8, 1995. Ms. Dutton argues that, because High Point Bank took possession of Debtor's inventory on June 7, 1995, it should be inferred that Debtor stopped paying its debts in the ordinary course of business on June 7 and hence became insolvent on that date — which was within ten days after receipt of her check by Debtor. The requirement for relief under § 25-2-502 is that the seller become insolvent within ten days. While the evidence may have been sufficient to support an inference that after June 7, 1995, Debtor was unable to pay its debts in the ordinary course of business, it was not sufficient to support a reasonable inference that Debtor first became unable to do so on June 7, 1995. Ms. Dutton offered no evidence as to whether Debtor had been paying its debts in the ordinary course of business before High Point Bank took possession of Debtor's assets on June 7, 1995, or whether Debtor's debts exceeded...
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