In re Uni-Products, Inc.

• Decision Date: 23 April 1993
• Docket Number: Adv. No. 92-3134.,Bankruptcy No. 92-31556
• Citation: In re Uni-Products, Inc., 153 B.R. 764 (Bankr. E.D. Mich. 1993)
• Parties: In re UNI-PRODUCTS, INC., Debtor. UNI-PRODUCTS, INC., Plaintiff, v. Edmond L. BEARSE, Nitro-Vac Heat Treating, Inc., Felix A. Stomber, Ralph A. Bolden and RTE, Inc., Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Michigan

153 B.R. 764 (1993)

In re UNI-PRODUCTS, INC., DebtorUNI-PRODUCTS, INC., Plaintiff, v.Edmond L. BEARSE, Nitro-Vac Heat Treating, Inc., Felix A. Stomber, Ralph A. Bolden and RTE, Inc., Defendants.

Bankruptcy No. 92-31556, Adv. No. 92-3134.

United States Bankruptcy Court, E.D. Michigan, N.D.

April 23, 1993.

Randall L. Frank, Bay City, MI, for plaintiff.

William W. Allsopp, Bay City, MI, for defendantsBolden & RTE.

Richard W. Hughes, Clare, MI, for defendants Stomber and Nitro-Vac.

OPINION REGARDING CROSS MOTIONS FOR SUMMARY JUDGMENT

ARTHUR J. SPECTOR, Bankruptcy Judge.

INTRODUCTION

On December 21, 1992, the Debtor in Possession ("DIP") filed a complaint against Ralph A. Bolden and other parties seeking, inter alia,"a determination that the debtor corporation is the proper and valid owner of" a Borg Warner vacuum forming machine, temperature controls, two vacuum tanks, four vacuum pumps and a hydraulic pump (collectively, the "machine").P. 4 of DIP's complaint.The DIP filed a motion for summary judgment against Bolden on February 19, 1993.Bolden answered the motion on March 8, 1993, and filed his own motion for summary judgment on the same date.A hearing on the DIP's motion was held on March 18, 1993, and Bolden's motion was heard April 2, 1993.For the reasons which follow, Bolden's motion will be denied, and the DIP's motion will be granted.

In August, 1991, Bolden and two associates expressed an interest in purchasing the machine from Universal-Rundle Corporation.Each of the associates was to pay a third of the machine's $26,000 purchase price, and the machine was to be used by a corporation which one of the associates, Edmond Bearse, was then planning to form.Bearse incorporated the Debtor on September 12, 1991, and the machine was purchased from Universal-Rundle on November 1, 1991.Because the other associates lacked the necessary funds, Bolden paid the entire purchase price himself, and the bill of sale identified him as the purchaser.¹

After purchasing the machine, Bolden arranged for it to be transported to a building located in Clare, Michigan.At the time of delivery, the Debtor was negotiating a lease of the building with its owner, Nitro-Vac Heat Treating, Inc.Those parties signed a lease on December 2, 1991.

In its motion, the DIP relied on two documents as evidencing a sale of the machine by Bolden to the Debtor.The first is a promissory note executed November 15, 1991, by the Debtor in favor of Bolden.The principal amount of the note is $31,500, which reflects the $26,000 paid by Bolden for the machine and miscellaneous costs that Bolden incurred in arranging for the machine's delivery to the Clare facility.This note became due on January 2, 1992.

The second document — attached as Exhibit C to the DIP's motion — is signed by Bearse in his capacity as the Debtor's president and provides:

The undersigned understands and agrees that title to the Borg Warner Vacuum Forming Machine shall be retained by Ralph A. Bolden until Promissory Note due on January 2, 1992, is paid in full.

This document was prepared on January 3, 1992, the day after the promissory note matured.

According to the DIP, these documents establish that the Debtor purchased the machine from Bolden, and that Bolden retained an interest in it to secure payment of the purchase price.Because Bolden did not perfect his security interest, the DIP argued, the interest can be avoided by the DIP pursuant to 11 U.S.C. § 544.

DISCUSSION

I.Does Bolden Hold Only a Security Interest in the Machine?

Bolden responded to the DIP's motion with three separate arguments: (1) although Bolden intended to sell the machine to the Debtor at some future date, no sale was ever made, and therefore Bolden never conveyed any interest in the machine to the Debtor; (2) the machine was never delivered to the Debtor, and therefore Bolden's purported retention of legal title in the machine effectively preserved Bolden's proprietary interest in it; and (3) there is no writing to evidence a sale of the machine by Bolden to the Debtor which would satisfy the Uniform Commercial Code's statute of frauds.These arguments will be addressed seriatim, followed by a brief discussion of Bolden's own motion for summary judgment.

(A) Sale of the machine

Bolden's first argument is that he did not enter into a sales transaction with the Debtor.To the extent this argument is based on the fact that he never conveyed title in the machine to the Debtor, it is without merit.SeeMich.Comp.Laws § 440.9102(Article 9, which governs secured transactions, "applies to security interests created by contract including ... a conditional sale ... or title retention contract."));Litwiller Mach. & Mfg. v. NBD Alpena Bank,184 Mich.App. 369, 375-76, 457 N.W.2d 163(1990);Nauman v. First Nat'l Bank of Allen Park,50 Mich. App. 41, 44, 212 N.W.2d 760(1973);Nickell v. Lambrecht,29 Mich.App. 191, 199, 185 N.W.2d 155(1970).²

Counsel for Bolden suggested that the relationship between his client and the Debtor may have been as bailor/bailee, rather than seller/purchaser.If the Debtor was in fact acting as Bolden's bailee with respect to the machine, then Bolden may be correct in asserting that the DIP acquired no equitable or legal interest in the machine.See, e.g., In re Zwagerman,115 B.R. 540, 546-47(Bankr.W.D.Mich.1990), aff'd,125 B.R. 486(W.D.Mich.1991);In re STN Enterprises,44 B.R. 512, 515(Bankr.D.Vt.1984).But as noted in Zwagerman, a bailment is "a delivery of goods for some purpose ..., with the goods to be redelivered to the bailor upon fulfillment of the purpose or to be dealt with according to the bailor's direction."115 B.R. at 547.And counsel for Bolden submitted no evidence indicating that the machine was delivered to the Debtor for any "purpose" other than because the Debtor purchased it from Bolden, or that Bolden had given the Debtor any special "direction" regarding the machine's disposition.Seep. 47 of Bolden's deposition ("Q. ...Until such time as the note dated November 15, 1991 was paid in full, the corporation could have physical possession to the equipment, was that the understanding?A.That's correct.").³Obviously, counsel's unsubstantiated intimation that Bolden and the Debtor may have established a bailor/bailee relationship, rather than entering into a conditional sales transaction, does not establish "a genuine issue for trial" under F.R.Civ.P. 56(e)(incorporated by F.R.Bankr.P. 7056).⁴SeeCelotex Corp. v. Catrett,477 U.S. 317, 324, 106 S.Ct. 2548, 2553-54, 91 L.Ed.2d 265(1986).I therefore reject Bolden's assertion that the parties' agreement was anything other than a sale.

(B) Delivery of the Machine

Since physical possession of the collateral is one means by which a lender can perfect its security interest, seeMich. Comp.Laws § 440.9305, delivery of the goods in question is obviously not essential to a finding that a security interest has been created.Cf.Ronald A. Anderson, 3 Uniform Commercial Code§ 2-401:22 (3d ed. 1992)("The fact that the seller retains possession of the goods does not bar concluding that title has passed to the buyer.The seller may be retaining possession under his unpaid vendor's lien when the goods were not sold on credit, or the seller may be retaining possession to accommodate the buyer in some way."(Footnote omitted)).Pursuant to Mich.Comp.Laws § 440.2401(1), however, "any retention or reservation by the seller of the title (property) in goods shipped or delivered to the buyer is limited in effect to a reservation of a security interest."(emphasis added).Thus Bolden's contention that his ownership interest has not been transformed into a security interest must fail if, notwithstanding the fact that he purported to retain legal title, the machine was shipped or delivered to the Debtor.Cf.Mich.Comp. Laws § 440.2403(1)(A party acquires voidable title — i.e., the "power to transfer a good title to a good faith purchaser for value" — if the "goods have been delivered to the party under a transaction of purchase."(emphasis added)).

The Uniform Commercial Code does not define the term "delivery" as it relates to goods such as the machine.But it does define the delivery of "instruments, documents of title, chattel paper, or certificated securities" as the "voluntary transfer of possession."Mich.Comp.Laws § 440.1201(14).This straightforward definition is consistent with the common understanding of the term's meaning.See, e.g., Black's Law Dictionary(5th ed. 1979)(Delivery is "the act by which the res or substance thereof is placed within the actual or constructive possession or control of another.")As noted in Black's,"what constitutes delivery depends largely on the intent of the parties."Id.Thus the inquiry here is whether Bolden transferred possession of the machine to the Debtor and, if so, whether that transfer was voluntary and intentional.

There is some disagreement among courts as to whether "possession" under the Uniform Commercial Code means nothing more than "physical control" of the goods, or if some other criterion — such as the ability to deny access to all other parties — must also be satisfied.See generallyCitizens Nat'l Bank of Denton v. Cockrell,850 S.W.2d 462, 463-66(Tex.1993).For the reasons stated in Cockrell, I believe that possession should in this context be defined as just that: simple physical possession of the goods in question.SeeCockrell,850 S.W.2d at 465(Possession should be "interpreted in light of the impression conveyed to an observer not involved in the transaction ... between the buyer and seller....It is the simple physical control that to outside parties suggests ownership rights.").⁵

As noted, Bolden arranged for the machine to be shipped to the Clare facility after he purchased it from Universal-Rundle.And it is clear from the record that he chose that site precisely because the Debtor planned to lease the...