102 B.R. 295 | D.R.I. | 1989
DECISION AND ORDER DENYING SETOFF AND DENYING REQUEST FOR SANCTIONS
Heard on June 1, 1989, on the debtors’ objection to Park Square Credit Union’s
At the hearing, Park Square requested leave to amend its proof of claim to allow for a setoff in accordance with the language in the promissory note, and pursuant to 11 U.S.C. § 553,
Based upon the testimony of Raymond and Aldor Lange, we find as facts that the debtor, Raymond Lange, had no knowledge of and did not consent to the opening of a joint bank account in his name with his father and mother. We also find that all of the funds deposited in said account were solely the property of Aldor Lange, who made all of the deposits and withdrawals.
Section 553 of the Bankruptcy Code does not create an independent right of setoff, but rather “extends to bankruptcy eases, nonbankruptcy common law doctrines of setoff with certain additional restrictions.” In re Wilde, 85 B.R. 147, 148 (Bankr.D.N.M.1988). The general rule is that “set offs in bankruptcy are allowed to the extent that they are based upon mutual obligations existing between the debtor and a creditor.” Bridgeport Co., Inc. v. U.S. Postal Service, 39 B.R. 118, 127 (Bankr.E.D.Ark.1984). However, “the presumption of a debtor-creditor relationship is rebut ted, and the funds are outside the bank’s right of setoff, when the bank is put on notice of a third-party’s interest in the deposited funds, for example, when the funds are held in a special account or in trust.” In re Brittenum & Associates, Inc., 868 F.2d 272, 276 (8th Cir.1989); see also In re Nat Warren Contracting Co., Inc., 95 B.R. 37 (Bankr.E.D.Va.1989) (“when deposits are made for special purposes they are held as trust funds and not as bank assets, hence the bank is without the right to appropriate the deposit to its own use as a setoff.” Id. at 39.); In re Andrews, 33 B.R. 197 (Bankr.S.D.Fla.1983) (“the right of setoff is not applicable to a special deposit or a deposit for a specific purpose or
On the facts before us, and based upon the applicable Rhode Island law, it is clear that a contractual relationship did not arise between Park Square and Raymond Lange in connection with bank account number 9192, which Aldor Lange opened in their joint names, because Raymond Lange did not authorize, consent to, or even know of the existence of this account until after the filing of his bankruptcy petition.
Next, we must consider whether Park Square violated the § 362 automatic stay by placing a hold on the subject bank account without prior court approval. “Section 362(a)(7) of the Bankruptcy Code ... enjoins the post petition set off of pre petition claims except with the approval of the Bankruptcy court.” Bridgeport Co., Inc., supra, at 130. There is no dispute that Park Square did not seek Court authorization to “freeze” the subject bank account by filing a motion for relief from stay. In fact, to this day, no such motion has been filed. In Bridgeport Co., Inc., supra, the Court found that although a technical violation of the stay occurred, no contempt sanctions would be imposed because “[i]ts conduct, although improper, is not particularly egregious and is defensible.” Id. at 130. The Bridgeport Company holding is applicable here, where in a Rhode Island bankruptcy case of first impression (we think), with an interesting legal issue involved, and where the authorities may not be in total agreement, the creditor’s conduct has resulted in a technical violation of the automatic stay. This is not a case for the imposition of sanctions, either, and the debtor’s request for the same is therefore denied.
Accordingly, Park Square is ordered to remove its administrative hold on account number 9192. Also, the debtors objection to the proof of claim as being secured is sustained, and Park Square’s claim is determined to be, and is unsecured.
Enter Judgment accordingly.
. The note, under the heading "default” provides: "if a demand for immediate payment has been made, the shares and deposits that you have given as security under this agreement can be applied towards what you owe.”
11 U.S.C. § 553 provides in relevant part that:
(a) Except as otherwise provided in this section and in sections 362 and 363 of this title, this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case....
. We take no position (and do not find it to be relevant here) on the interest which Mrs. Lange, the debtor’s mother, may have in this bank account.
. We believe that is why the account was not listed in the debtors’ schedules.