Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-92-01116/USCOURTS-ca10-92-01116-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

---

In re: 

general 

DAVID A. 

v. 

EUSTACE 

PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

PERMA PACIFIC PROPERTIES, a ) 

partnership, ) 

) 

Debtor, ) 

) 

FILLD 

United States C-ourt of Appeals Tenth Circuit 

DEC 2 2 1992 

ROBERT L. HOECKER 

Clerk 

) No. 92-1116 

GILL, Trustee, ) 

H. 

) 

Appellee, ) 

) 

) 

) 

WINN, JR., ) 

) 

Appellant. ) 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF COLORADO 

(D .C. No. 91-Z-2244) 

Submitted on the briefs: 

Delores B. Kopel, Denver, Colorado, James J. Joseph, of Danning, 

Gill & Diamond, Los Angeles, California, for Appellee. 

Jeffrey L. Beattie, Denver, Colorado, Joseph N. Mole, of Lemle & 

Kelleher, New Orleans, Louisiana, for Appellant. 

Before MOORE and TACHA, Circuit Judges, and SAFFELS,** Senior 

District Judge. 

**Honorable Dale E. Saffels, Senior District Judge, United States 

District Court for the District of Kansas, sitting by designation. 

Appellate Case: 92-1116 Document: 010110154881 Date Filed: 12/22/1992 Page: 1 
MOORE, Circuit Judge. 

On August 25, 1986, appellant Eustace H. Winn, Jr. agreed to 

loan $800,000.00 to Penna Resources Corporation (PRC), $400,000.00 

of which was actually advanced to the corporation. As part of the 

collateral for the loan, Winn took a security interest in the form 

of a deed of trust on property owned by Penna Pacific Properties 

(debtor), a general partnership subsidiary of PRC. Winn recorded 

the deed on March 2, 1987. 1 On August 8, 1987, debtor filed a 

Chapter 13 bankruptcy petition, administering the estate as debtor 

in possession. 

Winn filed a proof of claim against the bankruptcy estate and 

on September 13, 1988, the bankruptcy court allowed the property 

to be sold, ordering the net proceeds of $178,000.00 to be held in 

escrow because of an objection to Winn's proof of claim filed by 

Kaiser Steel Corporation. In late 1989, a trustee was appointed 

who succeeded to the objection to proof of claim. Following a 

hearing, the bankruptcy court denied the objection and allowed 

Winn's claim as to the secured portion. 2 

On November 1, 1990, the trustee filed a complaint seeking to 

void the transfer as a preference pursuant to 11 U.S.C. § 547 (b) . 

1 The parties have stipulated to the fact that March 

is the date of transfer. 

2 The bankruptcy court only allowed Winn's secured 

refused to allow an unsecured claim for the deficiency. 

2 

2, 1987, 

claim and 

Appellate Case: 92-1116 Document: 010110154881 Date Filed: 12/22/1992 Page: 2 
Section 547(b) of the Bankruptcy Code empowers a trustee to void a 

transfer if the trustee can establish that the transfer was: 

(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 owed by the 

debtor before the transfer was made; 

(4) made while the debtor was insolvent; 

(5 ) made on or within ninety days before the date of the 

filing of the petition, or between ninety days and one 

year before the date of the filing if the creditor was 

an insider; gilg 

( 6) the transfer enables the creditor to receive more 

than such creditor would receive if 

(A) the case were under chapter 7 of Title 11; 

(B) the transfer had not been made; and 

(C) such creditor received payment of such debt to 

the extent provided by Title 11 . 

The trustee has the burden of proving that a transfer is 

voidable as a preference . Following a hearing, the bankruptcy 

court concluded that the trustee had met his burden and declared 

the transfer void as a preference in violation of§ 547(b). Winn 

appealed and the district court affirmed the bankruptcy court's 

conclusion. In the bankruptcy court action, Wi nn argued that (1 ) 

the debt was not an antecedent debt of the debtor, (2) the debtor 

was not insolvent, and (3) Winn was not an insider with respect t o 

the debtor. On appeal, the parties agree that the only e l ement 

left in dispute is whether the antecedent debt owed to Winn is a 

debt of the debtor. We hold that it is and affirm. 3 

3 After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not mate riall y 

(continued on next page ) 

3 

Appellate Case: 92-1116 Document: 010110154881 Date Filed: 12/22/1992 Page: 3 
In reviewing a bankruptcy court decision we apply the same 

standards of review as those governing appellate review in other 

cases. See In re Davidovich, 901 F.2d 1533, 1536 (10th Cir. 

1990 ) . "[W]e review the bankruptcy court's legal determinations 

de nova, and its factual findings under the clearly erroneous 

standard." Id. (citation omitted); Fed. R. Civ. P. 52 (a). 

Findings of fact will not be disturbed unless, after reviewing the 

record, we are left with the conviction that a mistake has been 

made. LeMaire ex rel. LeMaire v. United States, 826 F.2d 949, 953 

(10th Cir. 1987). 

In its order voiding the transfer as preferential, the 

bankruptcy court found that, in light of its previous finding that 

Winn had a claim against the estate, it followed that he was a 

creditor of the estate. We agree with the district court's 

reliance on the recent Supreme Court case, Johnson v. Home State 

Bank, 111 S. Ct. 2150 (1991) , in which the Court stated that a 

security interest in real property, (i.e., a mortgage), secures a 

creditor's right to repayment. Id. at 2153. The Court held that 

this interest survives a Chapter 7 discharge of the debtor's 

personal liability and can be reasserted in a Chapter 13 

reorganization plan. Id. at 2153-54. "Even after the debtor's 

personal obligations have been extinguished, the mortgage holder 

still retains a 'right to payment' in the form of its right to the 

(continued from previous page) 

assist the determination of this 

34 (a); 10th Cir. R. 34.1.9. 

submitted without oral argument . 

4 

appeal. See 

The case is 

Fed. R. App. P. 

therefore ordered 

Appellate Case: 92-1116 Document: 010110154881 Date Filed: 12/22/1992 Page: 4 
proceeds from the sale of the debtor's property." Id. at 2154. 

The Court had previously held that a "right to payment" is an 

enforceable obligation. Pennsylvania Dep't of Pub. Welfare v. 

Davenport, 495 U.S. 552, 559 (1990) . 4 

In the Bankruptcy Code, a "debt" is defined as "liability on 

a claim," 11 U.S.C. § 101(12), and a "claim" is defined as a 

"right to payment, whether or not such right is reduced to 

judgment, liquidated, unliquidated, fixed, contingent, matured, 

unmatured, disputed, undisputed, legal, equitable, secured, or 

unsecured," id. § 101(5) (A). Because the Code defines a debt as a 

"liability on a claim," we conclude that the bankruptcy court was 

correct in determining that the debtor's "liability" on Winn's 

claim creates a right to payment and therefore a debt. 

In Smith v. Creative Financial Management. Inc . (In re 

Virginia-Carolina Financial Co;r:p.), 954 F.2d 193 (4th Cir. 1992), 

the Fourth Circuit decided a similar issue. The court held that, 

where the parties did not intend for any of the benefits of the 

loan to go to a third party, repayment of a loan by a debtor, on 

account of an antecedent debt, was a voidable preference even 

though the promissory note on the loan was signed by the third 

party. at 197-98. The Smith court determined that, 

independent of the third party's promissory note, the debtor also 

4 Al though Congress overruled the result in Davenport in the 

Criminal Victims Protection Act of 1990, it left unchallenged the 

Court's conclusions regarding the broad definition to be given to 

a "claim" under the Bankruptcy Code. Johnson, 111 S . Ct. at 2154 

n.4. 

5 

Appellate Case: 92-1116 Document: 010110154881 Date Filed: 12/22/1992 Page: 5 
incurred 

198. We 

an obligation 

believe that, 

to repay as a form of guarantor. Id. at 

although this case is factually 

distinguishable from Smith, the Fourth Circuit's common sense 

approach applies equally as well here. 

The debtor, in executing and delivering a deed of trust to 

Winn, incurred a separate and independent obligation to be 

responsible for the loan to PRC, at least to the extent of the 

value of the security. Although we have previously stated that 

intent is not a material question when deciding whether a transfer 

is preferential, Johnson v. Barnhill (In re Antweil). 931 F.2d 

689, 692, (10th Cir. 1991), the parties do not dispute the fact 

that the intent of the loan was to pay creditors of PRC in order 

to keep them from attempting to pierce the corporate veil and 

threaten the assets of the debtor. 

The Bankruptcy Code definitions express congressional intent 

that the terms "debt" and "claim" are coextensive: a creditor has 

a claim against the debtor; the debtor owes a debt to the 

creditor. See Davenport, 495 U.S. at 558; see also Energy Coop., 

Inc. v. SOCAP Int'l , Ltd . (In re Energy Coop., Inc.), 832 F.2d 

997, 1001 (7th Cir. 1987) (when a creditor has a "claim" against a 

debtor, in whatever form, the debtor has incurred a "debt" to the 

creditor) . We believe this reasoning is appropriate here. The 

debtor executed and delivered a deed of trust on its real property 

asset to Winn at the time that Winn extended the loan to debtor's 

parent corporation, PRC. Neither party refutes that a compelling 

reason for this loan was to hold PRC ' s creditors at bay and 

prevent them from reaching the debtor's assets. Winn recorded the 

6 

Appellate Case: 92-1116 Document: 010110154881 Date Filed: 12/22/1992 Page: 6 
deed six months after receiving it, thus effecting the transfer. 

Winn appears to concede that all§ 547(b) criteria are met except 

whether the transfer was "for or on account of" an antecedent debt 

of the debtor. The deed of trust, signed by the debtor, states 

that it is being executed "for the purpose of securing payment of 

the indebtedness evidenced by a Promissory Note and Security 

Agreement executed by Penna Resources Corporation, dated August 

25, 1986, in the principal sum of Eight Hundred Thousand Dollars." 

Appellant's App. at 31. We cannot but conclude that such a 

security interest is an "enforceable obligation" of the debtor. 

Johnson, 1.11. S . Ct. at 21.54. 

In Torwico Electronics, Inc. v. State of New Jersey, 

Department of Environmental Protection (In re Torwico Electronics, 

Inc.), 1.31. B.R. 561 (Bankr. D. N.J. 1991), the bankruptcy court, in 

deciding that a debtor's environmental cleanup obligation is a 

debt dischargeable in bankruptcy, discussed the definitions of 

"claim" and "debt" found in the bankruptcy code and emphasized the 

Congressional intent that these terms be construed very broadly. 

Id. at 566; see also Wyle v. C.H. Rider & Family (In re United 

Energy Corp.), 944 F.2d 589, 595 (9th Cir. 1991) (Congress intended 

"debt" and therefore, "antecedent debt" to be construed broadly in 

context of deciding whether a transfer is fraudulent); Nordberg v. 

Arab Banking Corp. (In re Chase & Sanborn Corp.), 904 F.2d 588, 

595 (11th Cir. 1990 ) (for purposes of the Bankruptcy Code, the term 

"debt" is to be construed broadly and expansively). 

"The Code does not require that a 'debt' be a contractual 

liability." In re United Energy Corp., 944 F . 2d at 595. I n 

7 

Appellate Case: 92-1116 Document: 010110154881 Date Filed: 12/22/1992 Page: 7 
recent years the Supreme Court has held on several occasions t ha t 

any enforceable obligation t o pay is a claim of the creditor and a 

debt of the debtor for purposes of discharge in bankruptcy . See 

Johnson, 111 S. Ct . at 2153-55 (mortgage lien survives Chapter 7 

discharge of debtors personal liability to be includable in 

Chapter 13 reorganization plan) ; Davenport, 495 U.S. at 555 

(criminal restitution orders are dischargeable as debts) ; Ohio v. 

Kovacs, 469 U.S. 274, 283 (1985) (obligation under an injunction t o 

clean up a hazardous waste site is a debt dischargeable in 

bankruptcy). 

It is the ultimate aim of the preference law in the 

Bankruptcy Code to insure that all creditors receive an equal 

distribution from the available assets of the debtor. See In re 

Antweil, 931 F. 2d at 692. Although the intent or state of mind of 

the parties is not materially disposi tive of whether or not a 

transfer is a preference, id., 

allowing the bankruptcy court to 

transaction and the relationship 

United Energy Corp., 944 F . 2d at 

we can see no impediment to 

look at the nature of the 

among the parties. See In re 

596 (as courts of equity, 

bankruptcy courts can consider the form of the transaction and the 

relationship of the parties) . Winn's loan to PRC generated a 

benefit for the debtor. It kept the wolves from the door, at 

least for a period of time. The debtor's deed of trust to Winn 

produced a right to payment from the debtor. The transfer 

depleted the estate of an asset which would otherwise be available 

for distribution to other creditors. This is precisely t he 

situation t ha t § 547 seeks t o prevent. Therefore , we hold that 

8 

Appellate Case: 92-1116 Document: 010110154881 Date Filed: 12/22/1992 Page: 8 
the bankruptcy court's conclusion that the transfer of property 

from the debtor to Winn constituted a voidable transfer under 

§ 547(b) of the Bankruptcy Code is not clearly erroneous. 

Although the district court did not supply us with a clear 

explanation of the analysis it applied in affirming the bankruptcy 

court decision, both the bankruptcy court and the district court 

reached the correct result . Accordingly, we AFFIRM the judgment 

of the United States District Court for the District of Colorado . 

9 

Appellate Case: 92-1116 Document: 010110154881 Date Filed: 12/22/1992 Page: 9