Opinion ID: 738240
Heading Depth: 4
Heading Rank: 1

Heading: to or for the benefit of the creditor;

Text: 39 (2) for or on account of an antecedent debt owed by the debtor before such transfer was made; 40 (3) made while the debtor was insolvent; 41 (4) made-- 42 (A) on or within 90 days before the date of the filing of the petition; or 43 (B) between 90 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 44 (5) that enables the creditor to receive more than such creditor would receive if-- 45 (A) the case were a case under chapter 7 of this title;(B) the transfer had not been made; and 46 (C) such creditor received payment of such debt to the extent provided by the provisions of this title. 47 11 U.S.C. § 547(b) (1994). Hager has conceded that the two transfers to him of liquidation sale proceeds meet all the requirements of this section except subdivision (5). Appellant's Brief at 14. As to that requirement, he contends that at the time of these transfers, he was a secured creditor of Preference by virtue of his December, 1992, purchase of the Crestar note and its incorporated security agreement. As such, he argues that he did not, per § 547(b)(5)(A-C), receive more by these transfers than he would have if the case were one under Chapter 7, the transfers had not been made, and he had received payment of the debt to the extent provided in a Chapter 7 liquidation. Therefore, under § 547(b)(5), the transfer to him of these proceeds did not constitute avoidable preferences. 48 The Trustee counters that (1) Hager's use of $40,000 from the Preference's bank account in partial payment and purchase of the Crestar note tainted any security interest he acquired by its purchase; (2) in any event, he did not acquire the security interest when the note was assigned to him on December 30, 1992, but only when the assignment was amended on February 1, 1993, after the liquidation sale had occurred, to affirm its intended original inclusion of the security interest; and (3) in any event, even if he was a secured creditor at the time of the liquidation sale, his entry into the escrow agreement respecting disposition of the sale proceeds insured that in a Chapter 7 proceeding he would not have realized as much, given the landlord's contractual claim, as he did by simply taking the entire proceeds in violation of the landlord's rights under the state court order approving the escrow agreement. 49 We take these in order. 50 On the first point, the Trustee's taint theory--as we understand it--depends on the amount of the debt assigned upon the note's purchase, hence the value of the interest in any collateral securing that debt. That interest would only be tainted under the Trustee's theory if the debt it secured was for the full amount, $129,764.04, paid to Crestar incident to the note's purchase and assignment to Hager. But that is not the case. The $40,000 paid on Preference's account out of its funds reduced the balance it then owed on the Crestar note by that amount. What Hager then purchased with his own check for $89,764.04 was a note worth only that reduced amount that was secured by collateral that could be realized only up to that amount. That debt and security interest, having been purchased entirely by Hager's own funds, was not tainted by the use of Preference funds to reduce its value in Hager's hands as a secured creditor. 51 On the second point, the time at which Hager acquired the security interest, we are satisfied that under Virginia law, the note assignment of December 30, 1992, carried with it the security interest incorporated in the note, though it was not expressly mentioned in the assignment. The note was a negotiable instrument under Va.Code Ann. § 8.3A-104(a) (Michie Supp.1996). As such, its transfer by assignment to Hager on December 30, 1992, constituted him a holder in due course and vested in him any right of the transferor to enforce the instrument. Va.Code Ann. § 8.3A-203(b) (Michie Supp.1996). Among these were the rights conferred by the security interest which clearly was then held by Crestar. The later amendment to the assignment confirming the original intention to assign the security interest was not required to make the assignment of December 30, 1992 effective for that purpose. 52 Nevertheless, we conclude that even if Hager was a secured creditor at the time of the liquidation sale of the collateral covered by the note, his entry into the escrow agreement created contractual obligations respecting the sale proceeds which took him out of the protections afforded by § 547(b) against certain preferential transfers. 53 Section 547(b)(5) does not give automatic protection to all secured creditors who receive preference-period pre-petition payments on their secured loans; indeed, secured creditors are not mentioned as such in this provision. Rather, it protects only those creditors, secured or unsecured, who can establish that they received no more by the payment than they would have received as claimants in a Chapter 7 liquidation. This simply carries out the common sense notion that a creditor need not return a sum received from the debtor prior to bankruptcy if the creditor is no better off vis-a-vis the other creditors of the bankruptcy estate than he or she would have been had the creditor waited for liquidation and distribution of the assets of the estate. In re Virginia-Carolina Financial Corp., 954 F.2d 193, 199 (4th Cir.1992). Secured creditors paid out of collateral proceeds will usually meet the § 547(b) conditions because of the primacy of secured claims against the estate, but not necessarily. Whether one does in a particular case depends upon the circumstances that would determine the amount he would receive in a Chapter 7 liquidation in relation to the amount actually received by the challenged transfer. 54 Here, we are satisfied that in a Chapter 7 liquidation proceeding, Hager would not have received the full amount of the proceeds from the liquidation sale that he actually received. By entering into the court-ordered escrow agreement upon which the court conditioned the sale, Hager subordinated his right to the entire proceeds to the landlord's provable claim for back rent. A bankruptcy court, liquidating the estate under Chapter 7, would be bound to enforce the landlord's provable claim as against Hager's otherwise preferred claim to the whole of the proceeds. Hager does not dispute that back rent in some amount was owed the landlord. In consequence, he received more by taking the entire proceeds from sale of his collateral than he would have received, though as a secured creditor, in a Chapter 7 proceeding. Accordingly, the Trustee is entitled under § 547(b) to avoid the transfer of the liquidation sale proceeds to Hager. 3