270 B.R. 221
Bankr. E.D. Tenn.2013Background
- Debtor seeks a determination that the January 17, 1997 agreement with Message Express is a financing arrangement for the purchase of personalty, not an executory contract.
- Agreed Order dated Dec. 21, 2000 required debtor to assume the agreement, make $4,000 monthly payments, and cure a $34,500 arrearage with additional monthly payments of $2,040.34 beginning March 15, 2001.
- Debtor later moved to amend/suspend the Agreed Order, arguing the agreement is nonexecutory and that payments should be avoidable under 11 U.S.C. §547/549; the court suspended the Agreed Order pending the adversary proceeding.
- Agreement purportedly provides debtor management and operation of Message Express in exchange for profits, with an option to purchase at $310,000 and offsetting treatment of the $4,000 payments if the option is exercised.
- Assets covered include tangible goods (computers, paging terminal, equipment) delivered to the debtor; other assets include accounts receivable and contract rights, which are not goods under U.C.C.
- Debtor contends title passed to the debtor upon delivery of goods, with retention of title as mere security; Message Express claims remaining obligations and transfer of title upon exercise of the option.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Agreement is an executory contract | Pro Page asserts nonexecutory financing arrangement. | Message Express asserts it remains an executory contract. | Not an executory contract; it is a financing arrangement. |
| When title to assets passes under the sale of personalty | Title passed on delivery; retention pending payment is security only. | Title may pass upon delivery only if explicitly agreed; otherwise, conveys on exercise of the option. | Title passed upon delivery; retention is security interest under U.C.C. |
| Does the agreement create a security interest rather than ownership transfer | Agreement shows ownership by debtor through management profits and asset control. | Agreement contemplates ownership transfer upon exercise of the option. | Agreement retains security interest, not ownership transfer; debtor owner of assets. |
| Application of U.C.C. provisions to asset transfers in Tennessee | U.C.C. 2-401/2-401(1) limits retention of title to security interest; ownership passes with delivery. | Contracts can specify conveyance upon option exercise; title transfer is conditional. | Under Tenn. Code Ann. 47-2-401, title passes on delivery; retention is security. |
Key Cases Cited
- In re Terrell, 892 F.2d 469 (6th Cir.1989) (definition of executory contract; remaining obligations on both sides)
- In re Fitch, 174 B.R. 96 (Bankr.S.D.Ill.1994) (installment contract not executory when possession delivered)
- In re McFarland, 112 B.R. 906 (Bankr.E.D.Tenn.1990) (purchaser's rights in automobile possession; later reversed by Sixth Circuit)
- In re Tom Woods Used Cars, Inc., 21 B.R. 560 (Bankr.E.D.Tenn.1982) (title retention as security interest; delivery transfers ownership)
- AHCI, Inc. v. Short, 878 S.W.2d 112 (Tenn.App.1993) (passage of title under U.C.C. 2-401; conditional sale analysis)
- In re Keyston Gen., Inc., 135 B.R. 275 (Bankr.S.D.Ohio 1991) (security interest vs. ownership in retention of title cases)
- In re J. Adrian Sons, Inc., 205 B.R. 24 (Bankr.W.D.N.Y.1997) (limits on title retention and U.C.C. passages)