In re Van Shop, Inc., Adv. No. 80-0131
Decision Date | 10 December 1980 |
Docket Number | Adv. No. 80-0131,Debtor No. 80-00340. |
Citation | 8 BR 73 |
Parties | In re The VAN SHOP, INC., Debtor. Philip R. JOELSON, Trustee in Bankruptcy, Plaintiff, v. BancOHIO NATIONAL BANK, Defendant. |
Court | U.S. Bankruptcy Court — Northern District of Ohio |
Philip R. Joelson, Toledo, Ohio, trustee.
Howard B. Hershman, Toledo, Ohio, for defendant.
This matter is before the Court on the Trustee's complaint for recovery of alleged preferential transfers received by BancOhio National Bank (Bank) as a result of two setoffs executed by the Bank on February 11 and 12, 1980. The Bank in its answer and trial brief claims the right of setoff, 11 U.S.C. § 553. In the setoff of February 12, the Bank attained the balance of the Van Shop Inc.'s (Debtor) checking account. When the improvement of position test of Section 553(b) is applied to this setoff the net insufficiency is $337.07. To this figure the parties are in agreement and the Bank concedes that this amount is owing to the Trustee. It is the insufficiency resulting from the setoff of February 11, 1980, which is at issue here. The parties agree to the facts and thus the matter is before the Court solely on the issues of law.
On February 11, 1980, the Bank setoff $1,048.86 from the account of Carol A. Clark (Clark). At that time Clark was President of the Debtor and was co-obligor with the Debtor on a promissory note held by the Bank. Both Clark and the Debtor were in default upon their obligation on February 11, and both had accounts at the Bank. Later in the year, March 10, the Debtor filed its voluntary Chapter 7 petition and the order for relief was entered. As of the date of the filing of the Debtor's petition, Clark had not nor has she since filed a petition in bankruptcy or had an involuntary petition filed against her. Philip R. Joelson was appointed Trustee at the creditors' meeting of March 31, 1980, and soon thereafter instituted this adversary proceeding to recover the insufficiency which arose out of the setoff of February 11, 1980.
Does 11 U.S.C. 553 empower the Trustee to recover money setoff by a creditor of the Debtor from the account of a co-obligor not in bankruptcy?
Section 553 is derived from Section 68 of the Bankruptcy Act and with some changes preserves the right of setoff. One of these changes, which limits the right of setoff by allowing the Trustee to recover money setoff on or within 90 days before the date of the filing of the Debtor's petition, is contained in Section 553(b) which provides as follows:
The limitations in the right to setoff "represents a decision by Congress to restrict the right of setoff and treat its exercise as a preference under certain limited circumstances". 4 Collier on Bankruptcy, 15th Ed., § 553.01 P. 553-6. (Footnote omitted). Even though a setoff is not technically a transfer under 11 U.S.C. 101(40), the basic purposes in allowing the Trustee to recover under Section 553(b) are the same as those of Section 547.
H.R.Rep.No.95-595, 95th Cong. 1st Sess. 177-78, reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5963, 6138. See S.Rep.No. 95-989, 95th Cong. 2d Sess. 97, reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5883. It is apparent that Congress has also adopted the improvement in position test of Section 553 from the test in Section 547(c). H.R.Rep.No.95-595, 95th Cong. 1st Sess. 185, reprinted in 1978 U.S.Code Cong. & Ad.News 6145. In the setoff situation the amount which is recoverable by the Trustee is actually a type of preferential transfer obtained by the creditor through a setoff.
While the present setoff appears to have reduced the total debt owed to the Bank and has therefore placed the Bank in a better...
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