Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-88-01908/USCOURTS-ca10-88-01908-0/pdf.json

Parties Involved:
J. D. Allen
Not Party
Michigan National Bank
Appellee
Kenneth L. Spears
Appellant

Document Text:

PUBLISH 

FI LED 

United States Cour.t of Appeals 

Tenth Circuit 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

NOV - 2 1989 

ROBERT L. :HOECKER 

Clerk 

IN RE: J. D. ALLEN, 

Debtor. 

KENNETH L. SPEARS, TRUSTEE, 

Plaintiff-Appellant, 

v. 

MICHIGAN NATIONAL BANK, 

Defendant-Appellee. 

Submitted on the briefs: 

88-1908 

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On Appeal From The 

United States District Court 

For The Western District 

Of Oklahoma 

(D.C. Civil No. 87-1782-P) 

Kenneth L. Spears and Derice A. Madoux of Kenneth L. Spears, P.C., 

Oklahoma City, Oklahoma, for Plaintiff-Appellant. 

G. Blaine Schwabe, III and J. Eric Ivester of Mock, Schwabe, 

Waldo, Elder, Reeves & Bryant, P.C., Oklahoma City, Oklahoma, for 

Defendant-Appellee. 

Before HOLLOWAY, Chief Judge, SETH and BARRETT, Circuit Judges. 

SETH, Circuit Judge. 

Appellate Case: 88-1908 Document: 010110063740 Date Filed: 11/02/1989 Page: 1 
After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); Tenth Cir. R. 34.1.9. The cause is therefore ordered 

submitted without oral argument. 

The appellant, a trustee of the debtor in bankruptcy, appeals 

the judgment of the United States District Court for the Western 

District of Oklahoma affirming the bankruptcy court's decision to 

grant summary judgment in favor of the appellee, Michigan National 

Bank. The district court's grant of summary judgment should be 

affirmed if there are no issues of material fact and the moving 

party is entitled to a judgment as a matter of law. Baker v. Penn 

Mutual Life Insurance Co., 788 F.2d 650 (10th Cir.). The 

obligations of the parties are als6 described in Celotex Corp. v. 

Catrett, 477 U.S. 317, and Anderson v. Liberty Lobby, Inc., 477 

U.S. 242. 

The issue presented by this appeal is whether the trustee for 

the debtor's bankruptcy estate can avoid a preferential transfer 

of the debtor's interest under a Purchase and Escrow Agreement 

pursuant to 11 U.S.C. § 547(b). If so, a secondary issue is 

whether the transfer from the debtor to Michigan National Bank 

falls within the ''contemporaneous exchange" exception to the 

avoidance powers of the trustee in bankruptcy under 11 u.s.c. 

§ 547(c). We conclude that Michigan National Bank properly 

perfected its security interest in the debtor's rights under the 

Purchase and Escrow Agreement. Additionally, under the facts of 

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Appellate Case: 88-1908 Document: 010110063740 Date Filed: 11/02/1989 Page: 2 
this case, the transfer meets the ''contemporaneous exchange" 

exception of 11 u.s.c. § 547(c). We therefore affirm the judgment 

of the district court. 

The debtor J. D. Allen entered into a Purchase and Escrow 

Agreement with Vail Village in which the debtor agreed to 

purchase, subject to certain conditions, a condominium in Colorado 

should it be built sometime in the future. There was apparently 

no obligation on the part of Vail Village to build the 

condominium. The only remedy of the debtor under the Agreement 

was to have his money returned. There was no right of specific 

performance. There was no specific piece of land described, no 

map and no declarations had been filed. The security interest was 

in the funds in escrow. 

Prior to bankruptcy, the debtor financed the purchase by a 

loan from Penn Square Bank and delivering to it a promissory note 

in the amount of $496,100.00. That sum was delivered into escrow 

pursuant to the Purchase and Escrow Agreement. Subsequently, 

Michigan National Bank and Penn Square Bank executed a 

participation agreement whereby Michigan National Bank was 

assigned and participated in $496,000.00 of the total amount 

loaned to the debtor. On August 23, 1982 the debtor and Michigan 

National Bank entered into a "Loan Agreement'' where the debtor 

executed an assignment granting Michigan National Bank a security 

interest in the debtor's rights under the Purchase and Escrow 

Agreement. Michigan National Bank then filed a financing 

statement in Oklahoma County, Oklahoma. On December 2, 1982 the 

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Appellate Case: 88-1908 Document: 010110063740 Date Filed: 11/02/1989 Page: 3 
debtor conveyed to Michigan National Bank all of his "rights, 

interest and. title'' ~nder the Purchase and Escrow Agreement and 

obtained, at that time, an additional $75,000 from Michigan 

National Bank. This is the "transfer" hereinafter referred to. 

Approximately three months later, an involuntary petition in 

bankruptcy was filed against the debtor. The trustee filed a 

complaint to avoid what it considered to be a preferential 

transfer alleging that the debtor's conveyance to Michigan 

National Bank constituted an avoidable transfer under 11 u.s.c. 

§ 547(b). The bankruptcy court granted Michigan National Bank's 

motion for summary judgment and held that the Purchase and Escrow 

Agreement was a "general intangible" as defined under Article 9 of 

the Uniform Commercial Code and that Michigan National Bank had 

properly perfected its security interest in the agreement by 

filing the financing statement. Moreover, the bankruptcy court 

also held, in the alternative, that the transfer met the 

"contemporaneous exchange" exception to Section 547(c} as found in 

11 U.S.C. § 547(c). On appeal, the district court affirmed, and 

the trustee appealed to this court. 

Title 11 u.s.c. § 547(b) enumerates five elements which the 

trustee must prove to avoid a preferential transfer. In Re George 

Rodman, Inc., 792 F.2d 125 (10th Cir.). There is no issue as to 

whether the trustee has sustained its burden in proving the first 

four elements under Section 547(b). Rather, Michigan National 

Bank asserts that the trustee cannot prove the fifth element under 

Section 547(b) which_provides that the trustee can avoid the 

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Appellate Case: 88-1908 Document: 010110063740 Date Filed: 11/02/1989 Page: 4 
( transfer of an interest of the debtor in property that enables 

such creditor to receive more than such creditor would receive if 

the case was under Chapter 7 of this title, and the transfer had 

not been made (this "transfer" refers to the outright transfer/ 

assignment of the entire contractual rights of the debtor under 

the Agreement), and such creditor received payment of such debt to 

the extent provided by the provisions of this title. 11 U.S.C. 

§ 547(b). 

Whether the trustee has proved the fifth element under 

Section 547(b) is determined in part by whether or not the 

debtor's interest under the Purchase and Escrow Agreement is a 

security interest which can be perfected by the filing 

requirements of Oklahoma's Uniform Commercial Code. Okla. Stat. 

Ann. tit. 12A, § 9-103 (1963 & Supp. 1989). The trustee asserts 

that the Purchase and Escrow Agreement is a contract for deed that 

gives the debtor an interest in real property, which, for Michigan 

National Bank to properly perfect must be recorded under the laws 

of Colorado where the land is located, and if Michigan National 

Bank did not properly so perfect its security interest, Michigan 

National Bank would occupy a subordinate position relative to the 

trustee with respect to the condominium pursuant to 11 u.s.c. 

§ 544. Therefore, the trustee further asserts that since the 

trustee would have superior rights in the condominium, the 

transfer of the condominium to Michigan National Bank would enable 

it to receive more than it would be entitled to in a liquidation 

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Appellate Case: 88-1908 Document: 010110063740 Date Filed: 11/02/1989 Page: 5 
under Chapter 7 of the Bankruptcy Code. We cannot agree with 

these contentions of the trustee. 

After reviewing the Purchase and Escrow Agreement, we agree 

with the district and bankruptcy courts that the debtor's interest 

in the Agreement was a "general intangible'' which was properly 

perfected by Michigan National Bank when it filed the financing 

statement in Oklahoma. Article 9 of the Uniform Commercial Code 

as defined in Okla. Stat. Ann. tit. 12A, § 9-102 (West Supp. 

1989), applies 

"to any transaction, regardless of its form, 

which is intended to create a security 

interest in personal property ••• - [and to] 

security interests created by contract 

" 

Moreover, Article 9 does not apply "to the creation or transfer of 

an interest in ••• real estate." Okla. Stat. Ann. tit. 12A, 

§ 9-104(j) (West Supp. 1989). 

Here, the debtor in the Loan Agreement assigned to Michigan 

National Bank a security interest in the debtor's rights under the 

Purchase and Escrow Agreement, and several months later assigned 

all his interest in the Agreement to Michigan National Bank. The 

debtor's interest under the Agreement was contractual, emanating 

from the debtor's right to receive and apply the escrowed funds to 

the purchase of the condominium if built. Michigan National 

Bank's security interest attached to the collateral in existence 

at the time, the escrowed funds. Moreover, the debtor did not 

have a deed of trust or interest in real property which could have 

been conveyed to Michigan National Bank. Rather, the Purchase and 

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( Escrow Agreement memorialized an arrangement whereby the debtor 

could, at a future time and subject to certain .. contingencies, 

decide to purchase the condominium if and when it came into 

existence. Until that time, the escrow agent would hold the funds 

in escrow. 

Since the debtor's interest in the Purchase and Escrow 

Agreement was not a contract for deed, the doctrine of equitable 

conversion does not apply. The fact that the debtor's contract 

right stemmed from an agreement involving the purchase of land 

does not change the nature of the transaction. See Equitable 

Development Corp. v. Wingold, 617 F.2d 1152 (5th Cir.); Official 

Comment to Okla. Stat·. Ann. tit. 12A, § 9-102. Moreover, courts 

have distinguished an interest in real estate from an assignment 

of. a contractual interest which is given by the debtor to a bank 

as security by holding that the assignment is a "contract right" 

under Section 9-102 of the Uniform Commercial Code. See Equitable 

Development Corp. v. Wingold, 617 F.2d 1152 (5th Cir.); Southwest 

National Bank v. Southworth, 22 B.R. 376 (Bank. D. Kan.). 

The official comment to Okla. Stat. Ann. tit. 12A, § 9-106, 

states that the term "general intangible" includes "miscellaneous 

types of contractual rights and other personal property which are 

used or may become customarily used as commercial security." 

Other courts have found that a contract right stemming from the 

assignment of a debtor's interest under a contract for deed was a 

"general intangible" under Section 9-106. See Equitable 

Development Corp. v. Wingold, 617 F.2d 1152 (5th Cir.); In Re D.J. 

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Appellate Case: 88-1908 Document: 010110063740 Date Filed: 11/02/1989 Page: 7 
Maltese, Inc., 42 B.R. 589 (Bankr. Mich.). Thus, the district and 

bankruptcy courts did not err in finding that the debtor's 

contract right was a "general intangible" which was properly 

perfected by Michigan National Bank under Oklahoma law by filing a 

financing statement. 

The district court did not err in its finding that the 

conveyance from the debtor to Michigan National Bank meets the 

"contemporaneous exchange" exception to avoidable transfers under 

11 u.s.c. S 547(c)(l). Section 547(c)(l) states: 

"(c) The trustee may not avoid under this 

section a transfer--

was 

(1) to the extent that such transfer 

(A) intended by the debtor and the 

creditor to ••• be a 

contemporaneous exchange for new 

value given to the debtor: and 

(B) in fact a substantially 

contemporaneous exchange •••• " 

In the case of In Re Rodman, 792 F.2d 125 (10th Cir.), this court 

held that the ''new value" requirement under the Bankruptcy Code 

should be construed liberally and that the valuation of the 

transfer is not a consideration. Rather, the value of the 

transfer should be scrutinized under the Bankruptcy Code's fraud 

provisions contained in 11 u.s.c. § 548(a). 

F.2d at 128. 

In Re Rodman, 792 

The record shows that at the time the debtor conveyed his 

interest under the Purchase and Escrow Agreement to Michigan 

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National Bank, the debtor received $75,000 from Michigan National 

Bank. The trustee has not alleged fraud in. connection with the 

conveyance. 

AFFIRMED. 

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