OPINION
OVERVIEW
Appellant Airwork Corp. repaired the debtor’s damaged aircraft engine. The debt- or moved the court to release to Airwork the insurance proceeds payable to the debtor for the loss. The unsecured creditors committee and Safeco, a securеd creditor with an interest in both the engine and the insurance proceeds, resisted the motion. Airwork offered various theories to establish its sole rights to the proceeds, but the court, after concluding that Airwork had not established any basis for giving it an advantage over other unsecurеd creditors, ordered the funds released to the debtor. For the reasons set forth below, we affirm.
FACTS AND PROCEEDINGS BELOW
On February 24, 1992, an aircraft owned by Markair, Inc. and leased to Markair Express, Inc. (collectively “Markair” or “the Debtor”) was involved in a collision at Anchorage International Airport, resulting in damage to an engine. The debtor notified its insurance company of a loss. On March 10, 1992, the debtor shipped the damaged engine to appellant Airwork Cor-p. in Millville, New Jersey for repair. On May 21, after repairing and overhauling the engine, Airwork sent it to Rocky Mountain Aircraft in Calgary, Canada at the debtor’s request. Rocky Mountain Aircraft installed the engine in another of the debtor’s aircraft. Airwork billed the debtor $189,119.29, of which $158,673.50 was attributed to repair work. On June 8, 1992, the debtor filed for bankruptcy protection.
On July 8, while the engine was still in Rocky Mountain’s possession, Airwork sent the debtor a reclamation notice and notice of assertion of lien under 11 U.S.C. § 546(b). 1 On August 8, Rocky Mountain delivered the craft with the installed engine to the debtor. The insurance proceeds remained in escrow with the debtor’s insurance company.
On March 9, 1993, the debtor filed a motion seeking release of the insurance proceeds to Airwork. The motion was objected to by the unsecured creditors’ committees of both debtor entities and by SAFECO. SAFECO had a perfected security interest in both aircraft and in any insurance proceeds relating to them. After а hearing, the bankruptcy court held that Airwork was not entitled to the proceeds. Airwork timely appealed. As SAFECO and the debtor were involved in a global settlement, and SAFECO was oversecured in any event, SAFECO relinquished all interest in the proceeds, and the court authorized release of the proceeds to the debtor.
ISSUES PRESENTED
Airwork offered six theories as a basis for recovery:
1. A constructive trust should be imposed on the proceeds for Airwork’s benefit;
2. Payment of the proceeds to SAFECO would result in unjust enrichment;
3. An equitable lien should be imposed on the proceeds for Airwork’s benefit;
5. Airwork possessed a valid reclamation claim with respect to installed engine parts;
6. Airwork had valid rights in the engine based on a mechanic’s lien.
Airwork also contends that issues 5 and 6 were not before the court on a motion to release the proceeds and should not have been adjudicated.
STANDARD OF REVIEW
Facts are not disputed. The case presents a mixed question of law and fact because the historical facts are established, the rule of law is undisputed, and the issue is whether the facts satisfy the legal rule.
Pullman-Standard v. Swint,
DISCUSSION
Airwork failed to establish a right to the res under its equitable theories.
The trial court concluded that Airwork had no legal right to the insurance proceeds res under state law, and in the event that an equitable claim existed, the court had discretion to refuse to apply equitable state court remedies based on overriding bankruptcy concerns. We agree.
Analysis focuses on the legal relationship between the parties. If no debtor-creditor relationship exists or was intended, a trust will exclude property frоm the estate.
In re Unicom Computer Corp.,
If, on the other hand, the law would impose a trust as a remedy, circumstances may warrant treating the claimant as any other creditor of the debtor, and thus subject to bankruptcy’s policy of ratable distribution. This is the result of
In re Tleel,
Although oftentimes the terms constructive trust and resulting trust are used together or interchangeably, the two concepts are distinct. A resulting trust arises by operation of law to enforce the inferred intention of the parties to the transaсtion. The existence of a resulting trust is established by circumstances showing that the
On the other hand, a constructive trust is a remedy which is inchoate prior to its imposition.
In re North American Coin & Currency, Ltd.,
While a constructive trust is a flexible remedy, “[w]e necessarily act very cautiously in exercising such a relatively undefined equitable power in favor of one group of creditors at the expense of other creditors. . . .”
North American Coin,
Airwork contends that it is entitled to either a constructive trust to the res or an equitable hen therein, because SAFECO and the debtor were unjustly enriched by retention of both the repaired engine and the insurance proceeds.
2
When a creditor can establish that it is entitled to a constructivе trust remedy under state law, the burden shifts to the debtor of demonstrating that it would be inequitable as a matter of federal bankruptcy law to impose a constructive trust over those funds.
Unicom,
Airwork did not plead and could not demonstrate a resulting trust under the facts: Airwork did not rely in any specific sense on payment from the proceeds, аnd the debtor did not indicate that payment to Air-work would be guaranteed therefrom. Air-work has attempted to graft the bankruptcy effect of the resulting trust onto its grounds for imposing a constructive trust. If a constructive trust would have been the proper state law remedy to prevent Markair’s unjust retention of the res, that remedy was inchoate when the estate was formed, and the trustee, representing the creditors of the estate, may defeat its application pursuant to § 544(a). Therefore, the bankruptcy court was correct when it held that even if Airwork wоuld have been entitled to the remedy of a constructive trust, the court could properly refuse to award one pursuant to overriding bankruptcy considerations. In effect, since the res is not retained by the debtor under these circumstances, but is ratably distributed to its creditors, no unjust еnrichment is presented, and the basis for the remedy is dissipated.
Airwork did not rely on the insurance 'proceeds.
As to Airwork’s reliance claim, ■ Airwork can support the assertion that it relied on the res only in the sense that it expected that Markair had the ability to pay for its services, based on its implicit apprehension that Markair was insured. Airwork has not contended that it would have refused to perform the work if the debtor was not insured.
To the contrary, Airwork stated, “No one at Airwork can make an unqualified statement that he knew of the existence of the insurance and relied on the insurance in agreeing to do the repair work.” ER 11 at 4-24 (citing letter from Airwork’s counsel.) Thus Airwork’s argument that it implicitly relied on the insurance proceeds is unpersuasive.
3
As the trial сourt noted, Airwork extended credit to the debtor, but did not request or receive assignment of the insurance proceeds.
Cf. In re Anchorage Nautical Tours, Inc.,
The trial court could properly dispose of Airwork’s reclamation claim and mechanic’s lien claim.
Airwork contends that it possessed a valid reclamation claim with respect to installed engine parts, and asserted rights in the engine based on a mechanic’s lien. The court ruled otherwise, and Airwork contends that these issues were not before the court and should not have beеn adjudicated.
These two claims were raised initially by the debtor in its motion for release of the proceeds to Airwork. The claims were opposed by the unsecured creditors and SAFE-CO. The claims were raised as support for Airwork’s claim to a right to the insurance proсeeds, as well as to establish direct rights in the engine or its components. In order to properly adjudicate Airwork’s entitlement to the proceeds as they might be based on these asserted claims, the court necessarily had to consider whether the claims themselves were tenable. Having been put in play, both aspects of these claims were before the bankruptcy court and were argued by Airwork in its response to the objections and at the hearing. The claims arise out of a single transaction. Had they been not been raised, they would have been barred by the judgment, and res judicata would prevent Air-work from raising them subsequently.
An invitation to establish the facts surrounding these claims by submission of evidence was not pursued. The bankruptcy court was entitled to accept facts as admitted and any uncontested inferences thаt might lead from them. Rocky Mountain’s release of the aircraft to the debtor one month after Airwork’s reclamation claim indicates that it was not Airwork’s agent. UCC § 2-702(2) states in part:
Where a seller discovers that the buyer has received goods on credit while insolvent he may reclaim the goods upon demand made within ten days after the re-ceipt_
The court determined that Rocky Mountain was the debtor’s bailee, and consequently that Airwork’s reclamation claim, coming some six weeks after releasing the engine to Rocky Mountain was untimely. Airwork’s attempt to characterize Rocky Mountain as a carrier is unpersuasive and does not demonstrate that the trial court’s finding was clearly erroneous.
CONCLUSION
The bankruptcy court did not commit reversible error by denying Airwork an interest in the insurance proceeds. Airwork did not establish an interest entitling it to rights greater than other creditors who dealt with the debtor. Airwork’s other claims based on the transaction merged with the judgment. For the reasons set forth above, we affirm.
Notes
. Unless otherwise stated, all references to "sections" refer to the Bankruptcy Code, 11 U.S.C. §§ 101 et seq.
. SAFECO has since disclaimed any interest in the proceeds.
. For example, a wholesaler could reasonably assert that he expected to be paid out of the proceeds obtained by the retailer.