____________

No. 95-1158

____________

In re: Rine & Rine Auctioneers, *

Inc., *

*

Debtor *

________________________ *

*

Rine & Rine Auctioneers, Inc., *

*

Plaintiff, *

*

v. * Appeal from the United States

* District Court for the

Douglas County Bank & Trust * District of Nebraska

Company; David Huddle, *

*

Defendants-Appellees. *

________________________ *

*

Richard D. Myers, *

*

Trustee-Appellant. *

____________

 Submitted: September 13, 1995

 Filed: January 22, 1996

____________

Before McMILLIAN, HEANEY and MURPHY, Circuit Judges.

____________

McMILLIAN, Circuit Judge.

Richard D. Myers (Trustee), trustee of the bankruptcy estate

of Rine & Rine Auctioneers, Inc. (Debtor), appeals from an order

entered in the United States District Court for the District of

Nebraska, affirming the bankruptcy court's judgment in favor of

Douglas County Bank & Trust Company (Bank) in an adversary

proceeding brought by the Trustee pursuant to 11 U.S.C. § 547,

alleging that a payment in the amount of $6,761.48 made by Debtor
 1

Because the Bank received the full amount of the $6,761.48

payment from Debtor, Huddle has no real interest in this

controversy and therefore has not participated in the litigation.

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to David Huddle and the Bank was an avoidable preferential

transfer. Myers v. Douglas County Bank & Trust Co. (In re Rine &

Rine Auctioneers, Inc.), No. 8:CV94-269 (D. Neb. Dec. 7, 1994),

aff'g No. BK92-80770/A93-8098 (Bankr. D. Neb. Apr. 18, 1994). For

reversal, the Trustee argues that the bankruptcy court erred in

holding that the money paid by Debtor to Huddle and the Bank was

held by the Debtor as an agent for its principal, Huddle, and it

was therefore not property of the estate which the Trustee could

recover under § 547. For the reasons discussed below, we reverse

the order of the district court and remand the case to the district

court with instructions.

Background

The underlying facts are summarized as follows. Debtor was

a corporation in the business of auctioning personal property for

its customers. Debtor orally agreed with Huddle, an auto repair

business owner, that Debtor would conduct an auction sale to

dispose of Huddle's business assets. Huddle's business assets were

the security for a loan which had been made by the Bank to Huddle.

Debtor agreed to conduct the sale, collect the proceeds, deduct

advertising expenses and its commission, and distribute the

remainder to the financial institutions holding security interests

in the assets sold; the remainder, if any, would be paid to Huddle.

The Huddle sale occurred on December 18, 1991, and earned

$23,737.50, which was deposited in Debtor's general bank account.

Thereafter, Debtor issued a check in the amount of $6,761.48

payable to the Bank and Huddle. Huddle endorsed the check to the

Bank, which received the full amount of the check as payment for

Huddle's outstanding loan.1
 2

Section 547(b) (emphasis added) provides:

Except as provided in subsection (c) of this

section, the trustee may avoid any transfer of an

interest of the debtor in property -- 

(1) to or for the benefit of a creditor;

(2) for or on account of an antecedent debt

owed by the debtor before such transfer was

made;

(3) made while the debtor was insolvent;

(4) made --

(A) on or within 90 days before

the date of the filing of the

petition; or

(B) between ninety days and one

year before the date of the filing

of the petition, if such creditor

at the time of such transfer was

an insider; and 

(5) that enables such creditor to receive

more than such creditor would receive if --

(A) the case were a case under

chapter 7 of this title;

(B) the transfer had not been

made; and

(C) such creditor received payment

of such debt to the extent

provided by the provisions of this

title.

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On April 27, 1992, Debtor filed for relief under Chapter 7 of

the United States Bankruptcy Code. The Trustee filed an adversary

proceeding against the Bank and Huddle, seeking to set aside the

payment made by Debtor to the Bank and Huddle on grounds that the

payment was an avoidable preferential transfer under 11 U.S.C.

§ 547(b).2 The Trustee maintained that Huddle was a creditor and

the money in dispute was property of the bankruptcy estate which

should be distributed in the normal course of the bankruptcy

proceedings. Following a hearing, the bankruptcy court entered a

written order in which it concluded that, under Nebraska law,

Debtor and Huddle were in an agent-principal relationship, not a

debtor-creditor relationship, and therefore the money was, at all

relevant times, the property of Huddle. Because Huddle owned the
-4-

money, the bankruptcy court reasoned, the money was never the

property of Debtor and therefore the Trustee had failed to satisfy

the threshold requirement that there be a transfer of "an interest

of the debtor in property." 11 U.S.C. § 547(b). Thus, the

bankruptcy court held that Debtor's payment to the Bank and Huddle

was not an avoidable preferential transfer. Slip op. at 2-3. The

Trustee appealed the bankruptcy court's ruling to the district

court. Upon review, the district court agreed with the bankruptcy

court's analysis and affirmed. This appeal followed.

Discussion

Under the Bankruptcy Code, a trustee may avoid a pre-petition

transfer of property by the debtor to a third party upon proof of

several criteria. 11 U.S.C. § 547(b). A threshold requirement of

§ 547(b), however, is that the property transferred be "an interest

of the debtor in property." Id. This requirement is satisfied in

the present case if the money transferred to Huddle and the Bank

was property of Debtor's estate at the time of the transfer. See

Bergquist v. Anderson-Greenwood Aviation Corp. (In re Bellanca

Aircraft Corp.), 850 F.2d 1275, 1279 & n.8 (8th Cir. 1988)

(Bellanca I) (the phrase "property of the debtor" in the pre-1984

version of § 547(b), which was replaced by "an interest of the

debtor in property," is equivalent to "property of the estate" for

purposes of determining whether the transfer of proceeds derived

from the debtor's sale of transferee's assets constituted a

voidable preference); see also 4 Lawrence P. King et al., Collier

on Bankruptcy ¶ 547.03, at 547-25 ("[t]he fundamental inquiry is

whether the transfer diminished or depleted the debtor's estate"),

547-24 n.18 (citing cases), 547-25 n.20 (citing cases) (15th ed.

1995) (hereinafter Collier). Under 11 U.S.C. § 541(a)(1), property

of the estate is generally defined to include all legal or

equitable interests of the debtor in property.
-5-

When a bankruptcy court's judgment is appealed to the district

court, the district court acts as an appellate court and reviews

the bankruptcy court's legal determinations de novo and findings of

fact for clear error. Wegner v. Grunewaldt, 821 F.2d 1317, 1320

(8th Cir. 1987). As the second court of appellate review, we

conduct an independent review of the bankruptcy court's judgment,

applying the same standards of review as the district court. Id.

In the present case, the controlling legal issue that was before

the district court, and is now before this court on appeal, is

whether the bankruptcy court erred in holding that the transfer did

not involve an interest of the debtor in property, as required by

§ 547(b). Central to this statutory issue is the question of

whether the relationship between Debtor and Huddle, vis-a-vis the

money transferred, was that of agent and principal or debtor and

creditor at the time of the transfer. As a general rule, if

property is in the debtor's hands as agent, the property or

proceeds therefrom are not treated as property of the debtor's

estate. 4 Collier ¶ 541.08, at 541-42 to 541-42.1. State law

controls questions concerning the nature and extent of the debtor's

interest in property. N.S. Garrott & Sons v. Union Planters Nat'l

Bank (In re N.S. Garrott & Sons), 772 F.2d 462, 466 (8th Cir.

1985) (Garrott). Therefore, Nebraska law governs the question of

whether or not an agency relationship existed at the time of the

transfer. Accord 4 Collier ¶ 547.03, at 547-24 to 547-25 ("The

term `interest of the debtor in property' is not defined in the

Bankruptcy Code . . . and thus, `[w]e look to state law to

determine whether property is an asset of debtor.'") (quoting

Kallen v. Ash, Anos, Freedman & Logan (In re Brass Kettle

Restaurant, Inc.), 790 F.2d 574, 575 (7th Cir. 1986)). Once that

state law determination is made, however, we must still look to

federal bankruptcy law to resolve the statutory issue. See

Garrott, 772 F.2d at 466 (once a determination is made regarding

the nature and extent of the debtor's interest in property, federal
 3

We note that both the bankruptcy court and the district court

considered the state law agency issue and the federal statutory

issue as one and the same under the facts of the present case.

While we agree that, in many cases (as in the present case), the

two issues will be closely intertwined, we caution that disposition

of the state law agency issue will not, in every instance,

conclusively decide whether or not property retained by the debtor

shall be treated as property of the estate under the Bankruptcy

Code. Each case will depend on its specific facts. 

-6-

bankruptcy law dictates the extent to which that interest is

property of the estate).3 

The bankruptcy court in the present case held that, because

Debtor was the agent of Huddle, the Trustee had failed to meet his

burden of proving that the money transferred to the Bank and Huddle

was property of Debtor's estate. The bankruptcy court reasoned:

In Nebraska, the relationship between an

auctioneer and the party who has employed the services

of the auctioneer to sell personal property is that of

principal and agent. Edwin Bender & Sons v. Ericson

Livestock [Comm'n Co.], 228 Neb. 157, 421 N.W.2d 766

(1988). Under the law of agency when an agent is

entrusted with care of a principal's property, ownership

remains in the principal. Edmondson v. Aladdin

Synergetics, Inc. (In re Tinnell Traffic Services,

Inc.), 43 B.R. 277, 279 (Bankr. M.D. Tenn. 1984).

Additionally, when there exists a true agency

relationship, a transfer by the agent of agency property

to the principal is not a voidable preference. The

reason is that the transfer is not property of the

debtor but is property of the principal. Jensen-McLean

Co. v. Crouthamel Potato Chip Co. (In re Crouthamel

Potato Chip Co.), 6 B.R. 501 (Bankr. E.D. Pa. 1980).

In this case, the debtor entered into an oral

contract with Mr. Huddle. The contract provided that

Mr. Huddle would make his personal property available

for sale and that the debtor would conduct an auction.

Following the auction, the debtor would collect the

proceeds of the sale and, after deducting sale expenses,

including commission, would deliver the balance to

[Huddle] or to [Huddle's] secured creditors.

The debtor did conduct the auction and collect the

proceeds. The fact that the debtor deposited the
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proceeds into the debtor's own account does not change

the ownership of the proceeds. The relationship of the

parties was that of agent and principal. The agent, the

debtor, held the property, the proceeds of the sale, for

the principal, Mr. Huddle. Mr. Huddle did not at any

time agree that the proceeds of the sale would become

the property of the debtor. 

Slip op. at 2.

Citing Wright & Souza, Inc. v. DM Properties, 510 N.W.2d 413

(Neb. Ct. App. 1993) (Wright & Souza), the Trustee argues that the

bankruptcy court erred in holding that Debtor and Huddle were in an

agency relationship at the time the money was transferred. The

Trustee also maintains that Edwin Bender & Sons v. Ericson

Livestock Comm'n Co., 421 N.W.2d 766 (Neb. 1988) (Bender & Sons),

relied upon by the Bank and cited in both the bankruptcy court and

the district court opinions, is inapplicable. The Trustee further

argues that, even if an agent-principal relationship between Debtor

and Huddle had existed at the time of the auction, that

relationship terminated upon conclusion of the auction sale and

thereafter became a debtor-creditor relationship. In support of

these arguments, the Trustee highlights the fact that, after the

auction sale, the proceeds received by Debtor were deposited in

Debtor's general bank account where they were commingled with other

funds in Debtor's possession and control. The Trustee further

maintains that evidence presented to the bankruptcy court showed

that during the period between the date of the auction sale and the

date the net proceeds were paid over to Huddle and the Bank,

Debtor's general bank account had a negative balance on several

occasions. The Trustee argues that this evidence proved that the

money paid to Huddle and the Bank could not have been the actual

proceeds from the auction sale of Huddle's business assets; in

other words, the funds paid to Huddle and the Bank could not be

traced. The Trustee also maintains that evidence presented to the

bankruptcy court demonstrated that Debtor bore the risk of loss if

the successful bidders failed to pay for assets they purchased.
-8-

Based upon all these factors, the Trustee argues, an agency

relationship did not exist under Nebraska law at the time the

$6,761.48 payment was delivered to Huddle and the Bank. For the

reasons stated below, we agree.

In Bender & Sons, the Nebraska Supreme Court noted generally

that an auctioneer, in selling property for another at an auction,

acts as the agent for its customer, and therefore the auctioneer's

rights and liabilities arising out of the auction sale are governed

by the general principles of agency law. 421 N.W.2d at 770-71.

The question of law regarding the relationship between an

auctioneer and auction customer arose because the auctioneer had

made a materially false statement regarding auctioned property and

was being sued for misrepresentation. The Nebraska Supreme Court

held that the auctioneer's statements regarding the attributes of

the auctioned property were made as an agent for its principal

(i.e., the customer) and therefore the potential liability of the

auctioneer depended on whether the misrepresentation had been

authorized by the customer. Id. at 771-72. Thus, the holding in

Bender & Sons is limited to its context: an auctioneer ordinarily

acts as the agent for its customer in making representations

regarding the customer's assets before or during the sale of those

assets. So limited, the holding in Bender & Sons is inapplicable

to the facts of the present case.

Wright & Souza, on the other hand, although factually not on

point, is more instructive in its statement of the applicable law.

In Wright & Souza, a loan broker sued a prospective borrower for

anticipatory breach of contract and prevailed before a jury. 510

N.W.2d at 415-16. On appeal, the borrower argued that the trial

court erred in failing to give a jury instruction regarding the

loan broker's alleged duties as the borrower's agent. The Nebraska

Court of Appeals held that no error had occurred because the

borrower had failed to establish the existence of an agency

relationship. Id. at 417. In reaching its decision, the Nebraska
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appellate court identified several factors to be considered in

determining whether an agency relationship exists: (1) the extent

of control the alleged principal exercises over the details of the

alleged agent's work; (2) whether the work is done with or without

the supervision of the alleged principal; (3) whether payment is by

the hour or by the job; (4) whether the work performed by the

alleged agent is part of the regular business of the alleged

principal; (5) whether the alleged principal is in the type of

business performed by the alleged agent; and (6) whether the

alleged agent is engaged in a distinct occupation or business. Id.

In applying the above factors to the facts of the case before it,

the Nebraska Court of Appeals held that no agency relationship

existed because the borrower exercised no control over the loan

broker; the loan broker was engaged in a distinct occupation which

was usually done without supervision; the method of payment was not

based on an hourly rate; and the services performed by the loan

broker were not a regular part of the borrower's business. Id. 

Likewise, in the case before us, application of the Wright &

Souza factors indicates that Debtor was not Huddle's agent at the

time the auction proceeds were deposited in Debtor's account and

subsequently paid over to Huddle and the Bank. Debtor was engaging

in a distinct occupation, unsupervised by Huddle and entirely

independent of Huddle's business. The method of payment was not

based on an hourly rate but was determined by the extent to which

Debtor successfully performed its services. Debtor kept the

auction proceeds in its general bank account, where the money

lacked any indicia of Huddle's ownership, was intermingled with

other funds, and was subject to any claims by Debtor's creditors.

Certainly, at that point, Huddle exercised no control over Debtor's

conduct with respect to the auction proceeds. We therefore hold

that the bankruptcy court erred in concluding that, at the time

Debtor paid Huddle and the Bank the $6,761.48 in proceeds from the

auction sale, Debtor was acting as Huddle's agent under Nebraska

law. Accord Restatement (Second) of Agency § 398 cmt. c (1958)
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("In the case of certain professional agents, such as auctioneers

and factors, it is customary, and hence ordinarily understood, that

the agent can properly mingle his funds with those of his

principal. . . . If the funds are properly mingled, the inference

is that the agent becomes a debtor to the amount received for the

principal, but that he agrees to maintain enough in the fund to pay

the principal, who has a charge upon the fund to the amount of the

debt.").

Having determined that the bankruptcy court erred in holding

that, under Nebraska law, Debtor acted as Huddle's agent at the

time the payment was made, we consider an alternative theory

advanced by the Bank to support its claim that the money

transferred was nevertheless not "an interest of the debtor in

property," within the meaning of § 547(b). The Bank suggests that,

even if Debtor was not acting as Huddle's agent when it retained

and delivered the proceeds from the auction sale, the Trustee still

cannot establish a transfer of an interest of Debtor in property

because the money that was transferred to Huddle and the Bank was

presumably derived from later auctions and therefore belonged to

other auction customers. In other words, the Bank argues that,

regardless of whether the property actually belonged to the

transferees or some other party, the money was not property of the

estate at the time of the transfer and therefore cannot be

recovered. 

The Trustee, on the other hand, urges us to follow the

reasoning in Franzwa v. KNEZ Building Material Co. (In re Walker

Indus. Auctioneers, Inc.), 38 B.R. 8, 12-13 (Bankr. D. Or. 1983)

(Walker), in which the Bankruptcy Court for the District of Oregon

held on summary judgment that the debtor, an auctioneer, was in a

debtor-creditor relationship, not an agent-principal relationship,

with its customers at the time payments were made to the customers

and therefore those payments were avoidable preferential transfers.

The Trustee argues that the decision in Walker represents the only
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fair approach in this type of case because, otherwise, the ability

of auction customers to recover auction proceeds from the

bankruptcy estate of the debtor-auctioneer would depend entirely

upon a race to the courthouse, which directly contradicts the goal

of the bankruptcy laws to impose a fair and orderly distribution of

property among equal creditors and permits a "robbing Peter to pay

Paul" result. Brief for Appellant at 37.

In analyzing the issue of whether the transfer involved an

interest of the debtor in property, for purposes of applying

§ 547(b), we agree with the reasoning in Walker. In Walker, the

bankruptcy court considered, among other things, that, under the

relevant auction contracts, the auctioneer had the right to deposit

auction proceeds in its general account and to use funds derived

from an auction sale during the time between the date of the sale

and the date when the net proceeds would become due to the

customer, twenty days after the sale. 38 B.R. at 12. The court in

Walker also relied on the broad meanings of the terms "creditor"

and "claim" under the Bankruptcy Code, 11 U.S.C. § 101(10)(A),(5),

and held that the customers became "creditors" of the debtor

immediately after the auction. Id. ("[u]nder the above

definitions [of `creditor' and `claim'], [the customers] were

creditors of the debtor immediately after the June 12th auction").

Therefore, even if the relationship between the auctioneer and its

customers were characterized as that of principal and agent, the

Walker court held, once the funds were commingled and it became

impossible to actually trace the principal's own money, the

relationship had to be treated as a creditor-debtor relationship

under the Bankruptcy Code with respect to those disputed funds.

Accord 4 Collier ¶ 541.08, at 541-47 ("In a true consignment

arrangement, bailment, or agency, recovery by the bailor,

principal, or consignor rests upon identification. When the

property involved, or its proceeds, has been intermingled with

other goods or funds of the debtor's, the owner must definitely

trace that which he claims as contained in the assets of the
 4

As in the present case, the defendant-customer also argued,

in the alternative, that the transfer occurred in the ordinary

course of business under 11 U.S.C. § 547(c)(2) and therefore the

trustee could not recover the funds. Salem v. Lawrence Lynch Corp.

(In re Farrell & Howard Auctioneers, Inc.), 172 B.R. 712, 717-18

(Bankr. D. Mass. 1994).

-12-

estate."). Finally, the Walker court observed that "[a] major goal

of the Bankruptcy Code is to treat equal classes of creditors

equally," and that "[o]ne of the tools to effect this goal is the

preference statute." 38 B.R. at 13.

Similarly, in Salem v. Lawrence Lynch Corp. (In re Farrell &

Howard Auctioneers, Inc.), 172 B.R. 712 (Bankr. D. Mass. 1994)

(Farrell & Howard), the trustee brought an adversary proceeding

under 11 U.S.C. § 547 to avoid a pre-petition payment made by the

debtor-auctioneer to one of its customers. The defendant-customer

moved for summary judgment arguing, among other things, that it

owned the money transferred and therefore the money was not

property of the debtor's estate at the time of the transfer.4

 Id.

at 715-16. In holding that the debtor had an equitable interest in

the money transferred, for purposes of applying § 547(b), the

bankruptcy court in Farrell & Howard reasoned:

The wording of the contract, as well as the

Debtor's actions, are conclusive on ownership of the

sales proceeds. The contract imposed no obligation to

segregate the proceeds or hold them in trust. It merely

required the Debtor to pay the [customer] the net

proceeds, less commission, within fourteen business days

following the auction. Consistent with these terms, the

Debtor deposited the proceeds in its general operating

account, intermingling them with other sales proceeds

and drawing checks upon the account for the Debtor's

expenses and payments to other sellers. All of this,

particularly the agreement's terms, establishes that the

parties' relationship following the auction was that of

debtor and creditor rather than trustee and beneficiary.

This is so even though the arrangement with the property

prior to sale was a consignment.

Id. at 716 (footnotes omitted).
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Finally, although neither party has cited Bellanca I, a

decision from this circuit, or the bankruptcy court's decision on

remand, 96 B.R. 913 (Bankr. D. Minn. 1989) (Bellanca II), we

believe those decisions are apposite in the present case and

provide strong support for the conclusion that the $6,671.48

payment was an avoidable preferential transfer. The pertinent

facts underlying Bellanca I and Bellanca II are as follows. The

debtor, Bellanca Aircraft Corporation (Bellanca), sold three

airplanes to Anderson-Greenwood & Company (AGCO) and then later

sold the airplanes to third parties on behalf of AGCO. The third

parties paid Bellanca, which deposited the payments into its

general corporate bank account and then drew its own checks to pay

AGCO. Bellanca II, 96 B.R. at 15. The bankruptcy court initially

held that the payments by Bellanca to AGCO were not preferential

transfers because the proceeds from the airplane resales never

became Bellanca's property, as required under § 547(b), and the

district court affirmed. See Bellanca I, 850 F.2d at 1278. On

appeal, this court remanded to the bankruptcy court on grounds that

the bankruptcy court's findings of fact were insufficient to make

a determination of whether an avoidable preferential transfer had

occurred. This court explained "[a] finding that the planes did

not belong to Bellanca does not automatically mean that proceeds of

the plane sales were not 'property of the debtor' within the

meaning of the Bankruptcy Code. Whether the proceeds became

property of the debtor is initially a question of state law that

depends on several unresolved factual issues." Id. at 1278-79.

This court went on to note that "[t]he [bankruptcy] court did not

explicitly make a finding that Bellanca sold the planes as AGCO's

agent, nor did the court find whether Bellanca segregated the funds

pending payment to AGCO." Id. at 1279.

On remand, the bankruptcy court stated: 

A preferential transfer must involve a transfer of

property in which the debtor has an interest. . . . To
 5

We note that, in Bergquist v. Anderson-Greenwood Aviation

Corp. (In re Bellanca Aircraft Corp.), 850 F.2d 1275 (8th Cir.

1988) (Bellanca I), and the bankruptcy court's decision on remand,

96 B.R. 913 (Bankr. D. Minn. 1989) (Bellanca II), the courts were

interpreting the pre-1984 version of § 547(b), which contained the

language "property of the debtor" instead of the current language

"an interest of the debtor in property." See Bellanca I, 850 F.2d

at 1278-79. Because the current version is, if anything, broader

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avoid the transfer, it must be shown that the transfer

deprived the debtor's estate of something of value which

could have been used to satisfy claims of the

creditors. . . .

 

Bellanca was ultimately successful in selling the

three AGCO-owned aircraft to third parties. The funds

received in payment of the sales were transmitted to

Bellanca who deposited the funds in its general

corporate account. These deposited funds became the

property of Bellanca since it had legally unrestricted

use of the funds and the funds were commingled with

other funds. . . . "[A]ny funds under the control of

the debtor, regardless of the source, are properly

deemed to be the debtor's property, and transfers that

diminish that property are subject to avoidance." In re

Chase & Sanborn Corp. (Nordberg v. Sanchez), 813 F.2d

1177, 1181 (11th Cir. 1987).

Bellanca II, 96 B.R. at 915 (internal citations omitted). 

The bankruptcy court then observed that AGCO had not

instructed Bellanca to segregate the payments received from the

third-party purchasers of the aircraft, and, moreover, the facts

clearly indicated that AGCO consented to Bellanca's conduct. Id.

The bankruptcy court also noted that the funds had been deposited

in Bellanca's corporate account, were commingled with other funds,

and were subject to the claims of Bellanca's creditors; thus, no

third party inspecting Bellanca's bank account could have known

that a certain portion of the funds were ultimately to be paid to

AGCO, nor could it be determined how much was owed to AGCO. Id. at

915-16. Accordingly, the bankruptcy court concluded that

Bellanca's transfer of the payments to AGCO was a transfer of

property of the debtor and constituted a voidable preference.5 Id.
in scope than its predecessor, the bankruptcy court's findings in

Bellanca II, supporting the conclusion that the sale proceeds

transferred were "property of the debtor," would also have resulted

in a finding that "an interest of debtor in property" was

transferred.

 6Our decision in the present case is not inconsistent with

Dolph Clothiers, Inc. v. Salomon (In re Martin Fein & Co.), 34 B.R.

333 (Bankr. S.D.N.Y. 1983) (Fein I), in which the bankruptcy court

held that, under New York law, an auctioneer acted as agent for its

auction customers at all relevant times and funds physically

segregated by the auctioneer in envelopes marked with the auction

customers' names were not part of the bankruptcy estate. Fein I is

distinguishable for several reasons; for example, not only were the

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at 915, 917. Accord Carlson v. Farmers Home Admin. (In re

Newcomb), 744 F.2d 621, 626 (8th Cir. 1984) ("[t]o be avoidable a

transfer must deprive the debtor's estate of something of value

which could otherwise be used to satisfy creditors"). Based upon

these findings, and the nature of the third-party purchasers'

direct dealings with Bellanca, the bankruptcy court also rejected

AGCO's contention that Bellanca acted as its agent, or that an

equitable constructive trust could be found under Minnesota law.

Bellanca II, 96 B.R. at 916.

In the present case, the bankruptcy court's factual findings

indicate that Huddle had not instructed Debtor to segregate the

payments received from the auction sale and that the payments were

deposited in Debtor's general bank account where they were

commingled with other funds and were subject to the claims of

Debtor's creditors. No third party inspecting Debtor's bank

account could have determined that some of the funds were owed to

Huddle or Huddle's creditors, or how much was owed. In view of

these facts, we hold that the auction proceeds retained by Debtor

were property of the estate once they were deposited in Debtor's

general bank account and, therefore, the transfer of the check in

the amount of $6,761.48 from Debtor to Huddle and the Bank

constituted a transfer of an interest of the debtor in property,

within the meaning of § 547(b).6

 
customers' funds physically segregated by the debtor, they were

recovered in the original form of cash and checks received by the

debtor from the auction bidders. Id. at 335. Nor is our holding

today directly at odds with the later decision in Varon v. Salomon

(In re Martin Fein & Co.), 43 B.R. 623 (Bankr. S.D.N.Y. 1984) (Fein

II), despite the bankruptcy court's determination in Fein II that

proceeds from an auction sale which were deposited in the

auctioneer's general corporate account were not part of the

auctioneer's bankruptcy estate. The decision in Fein II rested on

the holding that, under New York law, the auctioneer acted as agent

for its auction customers at all relevant times and therefore the

auction proceeds were held in a constructive trust. As a result,

the commingling of funds was wrongful and the auction customer, as

beneficiary of the constructive trust, had an equitable lien or

charge upon the entire bank account in which the trust res was

wrongfully deposited. Id. at 626-28. By contrast, in the present

case, Debtor was not Huddle's agent under Nebraska law at the time

the auction proceeds were collected from the bidders, deposited in

Debtor's bank account, and subsequently transferred to Huddle and

the Bank. Therefore, no constructive trust was implied by the

relationship and Debtor did not act wrongfully in depositing the

funds in its bank account. 

 7The Bank additionally argued on appeal that the Trustee

failed to prove one or more of the criteria for a voidable

preferential transfer enumerated in subsections (1) through (5) of

§ 547(b) and that, in any case, the limitations on recovery of

preferential transfers under 11 U.S.C. §§ 547(c)(2), 550(b)

preclude the Trustee from recovering the funds received by the

Bank. Because the bankruptcy court did not reach these issues, and

did not make sufficient factual findings upon which we could

address them, we leave them to the bankruptcy court's initial

consideration on remand. See Wegner v. Grunewaldt, 821 F.2d 1317,

1320 (8th Cir. 1987) (neither the district court nor the court of

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Conclusion

The bankruptcy court erred in holding that, under Nebraska

law, Debtor was Huddle's agent at the time the check for $6,761.48

was transferred to Huddle and the Bank and that the payment was not

a transfer of an interest of Debtor in property, within the meaning

of 11 U.S.C. § 547(b). The order of the district court affirming

the judgment of the bankruptcy court is therefore reversed and the

case is remanded to the district court. Because the findings of

the bankruptcy court are not sufficient to make a full

determination of whether the Trustee should prevail under § 547,7
appeals may make findings of fact; if the bankruptcy court's

findings are silent or ambiguous as to a material issue, the proper

disposition on appeal is to remand to the bankruptcy court to make

the necessary factual determinations). 

-17-

the district court is instructed to remand this case to the

bankruptcy court for further proceedings consistent with this

opinion. 

A true copy.

Attest:

 CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.