Smith v. Mark Twain National BankSmith v. Mark Twain National Bank
- Reporters:
- ,
- Before:
- Magill, Ross, Wollman
MAGILL, Circuit Judge.
Plaintiff Robert H. Smith (“Trustee“), as Trustee in Bankruptcy of Reidy Marketing, Inc. (“Debtor“), brought two separate suits based on recovery provisions of the Bankruptcy Code against defendant Mark Twain National Bank (“Bank“). Trustee sought recovery of the proceeds of certain assets liquidated by Bank, Smith v. Mark Twain National Bank, No. 84-0031-C(4) (E.D.Mo. filed Jan. 6, 1984) (the “set-off case“), and turnover of a post-petition certificate of deposit, Smith v. Mark Twain National Bank, No. 83-2541-C(4) (E.D.Mo. filed Nov. 7, 1983) (the “turn-over case“). The district court subsequently consolidated these actions and tried them in a bench trial. Bank appeals the district court‘s entry of judgment based on
I. BACKGROUND.
A. Financial Dealings.
Bank is a nationally chartered banking association with its principal place of business in St. Louis County, Missouri. From 1976 through mid-1981, Bank and Debtor maintained a business relationship in which Bank provided financing for Debtor‘s petroleum products brokerage business. The financing consisted of letters of credit and of loans to Debtor to fund petroleum purchases. In constructing the financing arrangements, Bank “relied on various certificates of deposit and repurchase agreements2 it issued to [D]ebtor as collateral for the credit and loans extended to [D]ebtor.” Smith v. Mark Twain National Bank, 57 B.R. 373, 374 (E.D.Mo.1986).
Initially, Bank and Debtor orally agreed that all certificates of deposit and repurchase agreements issued by Bank and in Bank‘s possession would be collateral for any credit extended. On March 20, 1979, however, Debtor and Bank executed the first of a series of written security and pledge agreements. The front of this agreement listed as collateral a certificate of deposit in Bank‘s possession on that day.3 The reverse side of the agreement contained a clause providing for a security
By early 1981, Debtor had been granted a $2,500,000 line of credit from Bank, evidenced by a note from Debtor to Bank in the same amount. The note provided that “[t]he [Debtor] and all endorsers, sureties, accommodation parties, guarantors and other parties hereto waive presentment for payment, demand for payment, protest and notice of every kind and nature.” On June 1, 1981, Bank increased the line of credit to $4,000,000, which was evidenced by Debtor‘s promissory note to Bank executed on the same day. This note contained the same language as the previous note. On June 5, 1981, Bank advanced $972,144 to Debtor on the line of credit.
On June 1, 1981, Bank had in its possession three certificates of deposit with a total face value of $2,025,000.5 Bank also had in its possession two repurchase agreements, together totalling $2,683,000, exclusive of interest.
On June 8, 1981, Debtor executed a second security and pledge agreement in favor of Bank, the front side of which provided:
Pledgor does hereby give and grant unto Bank as security for [p]ledgor‘s liability and obligations hereunder, a lien, with full right of setoff, upon any deposit or other account of pledgor with Bank and all securities and property of any kind and of whatsoever nature belonging to pledgor or in which pledgor has any right, title or interest and which, for any purpose have come into the possession, custody or control of Bank.
Mark Twain, 57 B.R. at 376. Debtor also executed an assignment to Bank on June 8, 1981.
On June 29, 1981, Debtor executed a third security and pledge agreement granting Bank a security interest in the three aforementioned certificates of deposit. The reverse side of the agreement contained language identical to the two previous agreements. All of the security and pledge agreements also contained a paragraph 9, which permitted Bank to “demand, sue for, collect and/or receive money, securities or other property at any time due, payable or receivable on account of or in exchange for any such part of the collateral.” On June 29, Debtor also executed an assignment of the $1,500,000 certificate of deposit to Bank.
On June 30, 1981, Bank advanced Debtor $3,008,917 on Debtor‘s line of credit. Bank made this advance to enable Debtor to pay one of its creditors. This transaction was evidenced by Debtor‘s promissory note to Bank executed on June 30 for the same amount. The June 30 note contained the same language as the two previous notes. The June 29 security and pledge agreement was executed by Debtor in conjunction with the June 30 advance.
In early July of 1981, Bank and Debtor entered into two repurchase agreements in the amounts of $300,000 and $700,000. On
In late July of 1981, Debtor orally requested the withdrawal of $1,350,000 of its funds held by Bank. Bank “informed [D]ebtor that if he made written demand for withdrawal of funds, his collateral would be liquidated.” Mark Twain, 57 B.R. at 378. Nevertheless, on July 30, 1981, Debtor, by telegram, requested Bank to wire transfer $1,350,000 to Debtor‘s account at a Mobile, Alabama bank. Also on that date, Bank issued a $200,0006 certificate of deposit to Debtor, and Debtor executed an assignment of the certificate to Bank.
B. Bank‘s Actions on July 31, 1981.
On July 31, 1981, Bank sent Debtor a telex and a letter informing Debtor that its request of July 30, 1981, “was not within the terms of its agreement,” and that Bank “deemed itself insecure” and “had applied all funds of [D]ebtor‘s deposit accounts and repurchase agreement proceeds to reduce [D]ebtor‘s loan balance.” Mark Twain, 57 B.R. at 377. Further, in the telex and letter, Bank demanded full payment of the balance still due and owing after its collection action. As of this date, none of the security and pledge agreements had been cancelled or released.
In reducing Debtor‘s loan balance on July 31, 1981, Bank used a series of bookkeeping transactions.7 Bank credited certain amounts, corresponding to Debtor‘s various accounts and assets held by Bank, to Debtor‘s outstanding indebtedness.8
On August 7 and 10, 1981, two checks totalling $225,130, which had been deposited for the same amount in Debtor‘s demand deposit account to produce the July 31 balance of $445,176, were returned marked “Stop Payment.” These checks were charged back to Debtor‘s account, and the amount actually credited to Debtor‘s outstanding indebtedness on July 31, 1981 was adjusted to $228,158.
C. Debtor‘s Bankruptcy and Post-Bankruptcy Dealings.
On August 31, 1981, an involuntary petition for relief under Chapter 7 of the Bankruptcy
On November 6, 1981, post-bankruptcy petition and pre-order for relief, Debtor wire-transferred $250,000 to Bank which, on the same day, issued a certificate of deposit in Debtor‘s name. On or after November 6, Bank received from Debtor a security and pledge agreement, which listed the postpetition certificate of deposit as collateral, and an assignment of the certificate. The certificate was assigned to Bank “as security and collateral for a loan of even date herewith9 and for any other indebtedness or liabilities, present or future, absolute or contingent, direct or indirect * * *.” Trustee, in a memorandum to Bank dated February 10, 1982, requested Bank to turn over the certificate of deposit. In a letter to Debtor dated February 12, 1982, Bank acknowledged receipt of Debtor‘s memorandum. Although Bank also indicated in its letter that turnover of the certificate would be forthcoming at some point in the future, Bank never gave the certificate to Trustee.
D. Trustee‘s Suits and the District Court‘s Decisions.
1. The Set-Off Case.
On January 6, 1984, Trustee filed a complaint against Bank in the set-off case. Trustee sought, under three different theories, to recover all or part of the approximately $3,600,000 allegedly transferred from Debtor to Bank on July 31, 1981. Count I of Trustee‘s complaint sought to avoid the transfer under Section 547 of the Bankruptcy Code,
On January 10, 1986, the district court issued a memorandum opinion and judgment in favor of Trustee, ordering Bank to pay Trustee $606,154.0810 and prejudgment interest at nine percent per annum from July 31, 1981. Mark Twain, 57 B.R. at 379. The court rejected Counts I and III, granting Trustee relief only on Count II. See id.
2. The Turnover Case.
On August 29, 1984, Trustee filed its amended complaint against Bank in the turnover case.11 Count I of the complaint sought to avoid the transfer of $250,000 to Bank under
II. DISCUSSION: THE SET-OFF CASE.
A. Application of Section 553(b) to Foreclosure of Bank‘s Security Interest.
Bank contends that the district court erred as a matter of law in applying
Under what is commonly known as the “strong-arm clause” of the Bankruptcy Code, the trustee is given the rights and powers of a judicial lien creditor as of the date of bankruptcy.
Under Article 9 of the U.C.C. as adopted in Missouri, a trustee in bankruptcy becomes a lien creditor as of the date the bankruptcy petition is filed and has priority over all unperfected security interests.
1. Security Interest in Certificates of Deposit and Repurchase Agreements.
Missouri‘s version of the U.C.C. provides that Article 9 applies to security interests created by pledge or assignment,
Although the district court did not address whether Bank had a security interest in the certificates of deposit or repurchase agreements, it is clear from the foregoing analysis that Missouri law authorized Bank to take a security interest in Debtor‘s certificates, whether or not they were negotiable. The instruments were pledged, and the course of dealings between the parties indicated that they intended to create a security interest. See
Additionally, the differences between the certificates of deposit and the repurchase agreements in this case were minor; the repurchase agreements generally had a shorter term of maturity, a higher rate of interest, a larger principal and were backed by government securities. Both instruments, however, constituted an unconditional promise by Bank to repay Debtor, and were, in substance and legal effect, promissory notes from Bank to Debtor. See Kaw Valley State Bank and Trust v. Commercial Bank of Liberty, 567 S.W.2d 710, 712 (Mo.Ct.App.1978). Further, both parties treated the two instruments similarly
2. Security Interest in After-Acquired Collateral.
The Missouri Code permits a security agreement to provide “that collateral, whenever acquired, shall secure all obligations covered by the security agreement.”
In this case, although the district court never expressly held that the certificates of deposit and repurchase agreements held by Bank on July 31, 1981 constituted after-acquired collateral that was subject to a security interest, the district court‘s factual findings logically support this conclusion. First, the court specifically found that Bank “relied on various certificates of deposit and repurchase agreements * * * as collateral for the credit and loans extended to debtor.” Smith v. Mark Twain National Bank, 57 B.R. 373, 374 (E.D.Mo.1986) (emphasis added). Second, although the parties’ initial agreement was oral, the court discussed and quoted from several written security and pledge agreements executed by the parties that appear to reflect the oral agreement. Specifically, the court quoted and underscored the after-acquired property clause found in paragraph 7 of the agreements. See id. at 375. These findings suggest that the court impliedly held that the security and pledge agreements granted Bank a valid security interest which attached to both the certificates of deposit and repurchase agreements as after-acquired collateral.16
Moreover, Trustee‘s assertion that the clause did not apprise Debtor of Bank‘s security interest in after-acquired collateral must fail. Both parties are sophisticated business entities, and the clause clearly spells out Bank‘s rights as to the collateral. See Drysdale v. Cornerstone Bank, 562 S.W.2d 182, 183 (Mo.Ct.App.1978) (security agreement granted bank a security interest in collateral described as “all similar property hereafter acquired“). In Drysdale, even though the debtor had no knowledge of the contents of the agreement, the Missouri Court of Appeals found “the language of the bank‘s security agreement is manifestly sufficient to create a security interest in after-acquired property * * *.” Id. at 185.
3. Perfection of Security Interest in Collateral.
For a security interest to be enforceable against a debtor, the security
Here, there is no question that Bank possessed the instruments as collateral until and on July 31, 1981. Thus, the security interest was enforceable, and was perfected long before August 31, 1981, the day the bankruptcy petition was filed against Debtor.
4. Conclusion.
Based on the foregoing analysis, we hold that Bank‘s security interest in the certificates of deposit and repurchase agreements has priority over Trustee‘s section 544(a)(1) lien. See In re Schalk, 592 F.2d 993, 996 (8th Cir.1979). This determination, however, does not end our inquiry; we must next address Trustee‘s contentions that Bank‘s foreclosure of its security interest in this particular case was invalid.
B. Validity of Bank‘s Foreclosure.
Trustee first contends that Bank failed to hold a sale of the collateral upon Debtor‘s default, as required by the security and pledge agreements. Trustee also maintains that Bank failed to give Debtor written notice before it foreclosed the collateral, as required by both the agreements and Missouri law. We address each of these contentions in turn.
1. Sale Unnecessary.
Trustee correctly quotes paragraph 7 of the security and pledge agreements as giving Bank the right “to sell any or all of the collateral at [a] public or private sale.” Contrary to Trustee‘s argument, however, this clause does not require a sale; it merely authorizes a sale. Although the parties could have limited Bank‘s sole remedy in the event of Debtor‘s default to a sale of the collateral, see
Section 400.9-501(1) of the Missouri Code provides that upon a debtor‘s default, the rights of a secured party may be defined in the security agreement, and further, that a secured party has the right to “foreclose” its interest in the secured property.
The Missouri Code does not delineate the specific procedure a creditor must follow to “dispose” of the collateral. Recent cases indicate, however, that where a bank holds a certificate of deposit as collateral, and where the certificate was originally issued by that bank, a formal sale is unnecessary; the bank may simply liquidate the certificate and apply the proceeds by using a set-off mechanism. See In re Nutting, 44 B.R. 233, 238 (Bankr.D.Vt.1984); Rankin v. First National Bank, 416 So.2d 738, 740 (Ala.1982); In re Herren, 10 B.R. 252, 256 (Bankr.N.D.Ala.1981). Moreover, the reasoning underlying an older Missouri case, Hughes v. Community Bank of Dawn, 336 Mo. 305, 78 S.W.2d 98 (1934), supports this result. In Hughes, the trial court decreed foreclosure of a bank‘s lien on a certificate of deposit, and ordered the certificate to be publicly sold with the proceeds of the sale applied to the debtor‘s loan balance. The Missouri Supreme Court approved the judgment, except for the part ordering a public sale of the certificate. Hughes, 78 S.W.2d at 103. The court reasoned that “[t]he money for which the certificate was issued is in the hands of the defendant. There is no need to incur the expense of an execution sale of the certificate and the possible sacrifice of part of its value which might result at such sale.” Id.
In the case at bar, Bank followed the procedures permitted by the foregoing authorities. First, paragraph 9 of the agreements provides that a default occurs whenever Bank “deems itself insecure,” and that Bank has the power to “collect and/or receive money, securities or other property at any time due.” The district court specifically found that these powers gave Bank “the right to liquidate collateral in its possession * * *.” Smith v. Mark Twain National Bank, 57 B.R. 373, 378 (E.D.Mo.1986); see also Nutting, 44 B.R. at 238 (bank bargained for, and obtained, the right to liquidate in event of default, as evidenced by language of assignment documents). Moreover, just as in Nutting, Rankin, Herren, and Hughes, Bank is the original issuer of the certificates of deposit and repurchase agreements which it held as collateral for Debtor‘s obligations to Bank. Public sales in this situation may not be economical to either party; the sale could result in unnecessary expenses and a loss in value of the collateral. See Hughes, 78 S.W.2d at 103. It should be noted that no such loss occurred here; Bank credited Debtor‘s account with the precise dollar value of the instruments on July 31, 1981.
In light of the language of the security and pledge agreements and the fact that Bank was the original issuer of the instruments it held as collateral, we hold that a sale of the collateral was not required and that Bank foreclosed its security interest in the collateral by using offsetting bookkeeping entries to dispose of the collateral and apply the proceeds to Debtor‘s loan balance.
2. Effect of Lack of Written Notice.
Although section 400.9-501(1) authorizes the parties to provide for the secured party‘s rights and remedies in the security agreement, it also forbids waiver of certain duties of the foreclosing party. See
Bank concedes that it gave no written notice to Debtor. Nor can the waiver of notice in Debtor‘s notes to Bank be deemed valid in this case, in light of the prohibitions on waiver embodied in sections 400.9-501(3)(b) and 400.9-504(3). Bank contends, however, that the certificates of deposit and repurchase agreement are covered by the emphasized exception to section 400.9-504(3) or, even if they are not, the only
We are not aware of any court which has held that certificates of deposit and repurchase agreements are collateral that is “customarily sold on a recognized market.” The courts that have applied this exception have dealt with collateral that consisted of corporate stock or investment securities. E.g., LeRoy v. Marquette National Bank, 306 N.W.2d 815 (Minn.1981); Marine Midland Bank-Rochester v. Vaeth, 88 Misc.2d 657, 388 N.Y.S.2d 548 (1976). We do not choose to take the bold step today to hold that the instruments here are of the type customarily sold on a recognized market, especially in light of the fact that this issue was not fully briefed by the parties. This does not preclude us, however, from discussing Bank‘s alternative contention.
The Missouri courts which have held that a secured creditor must give written notice pursuant to section 400.9-504(3) have done so where the claimant was seeking to obtain a deficiency judgment. E.g., Garrison, 535 F.Supp. at 264; Modern Auto Co. v. Bell, 678 S.W.2d 443, 444 (Mo.Ct.App.1984). In those cases, the courts determined that the lack of written notice precluded the claimant only from obtaining the deficiency judgment. See Garrison, 535 F.Supp. at 266; Bell, 678 S.W.2d at 445. We have not found one Missouri case, however, holding that the absence of notice under section 400.9-504(3) invalidates a foreclosure. Because there is no controlling state law on this particular issue, it is our duty to apply the rule we believe that the Missouri Supreme Court would follow. See Dabney v. Montgomery Ward & Co., 761 F.2d 494, 499 (8th Cir.1985) (citation omitted).
In this case, Bank has not sought any deficiency judgment; it is only seeking to retain the proceeds of its collateral. Therefore, cases like Garrison and Bell do not technically apply to this situation. Even if these cases do apply, however, not one of them ordered the creditor‘s foreclosure itself was to be invalidated; the courts only ordered that the deficiency judgment could not be recovered.
Further, although Bank‘s oral notice may not have strictly complied with the statute, this notice did serve to further the purpose underlying the statutory notice requirement--to apprise Debtor of Bank‘s possible actions so that Debtor could take whatever steps necessary to protect its interest. See Bell, 678 S.W.2d at 445. Here, however, Debtor chose to request the wire transfer regardless of this notice, knowing that Bank would take action if it did. In situations like this, it is questionable whether even written notice would serve the purpose underlying the notice requirement. We therefore conclude that if a Missouri court was faced with this particular issue, it would not order Bank‘s foreclosure to be invalidated.
C. Inapplicability of Section 553 to Bank‘s Foreclosure.
Finally, having determined that Bank‘s actions on July 31, 1981 amounted to a valid foreclosure of its security interest in the collateral, we now address whether the district court erred in applying
In bankruptcy cases, section 553 of the Bankruptcy Code,
Various authorities, cases and commentators have noted that the rules in section 553 “do not apply with respect to ‘set-offs’ that are in fact seizure of property subject to a security interest * * *.” 1A Bkr.L.Ed. Sec. 6:225, at 401 (Lawyers Cooperative Publishing Co. 1981); see Rankin v. First National Bank, 416 So.2d 738, 740 (Ala.1982); In re Herren, 10 B.R. 252, 255-56 (Bankr.N.D.Ala.1981); Ahart, Alan M., Bank Setoff Under the Bankruptcy Reform Act of 1978, 53 Am.Bankr.L.J. 205, 227-29 (1979) [hereinafter cited as “Bank Setoff “]; G. Gilmore, Security Interests in Personal Property Sec. 10.7, at 315-16 (1965); but see Queenan, The Preference Provisions of the Pending Bankruptcy Law, 82 Com.L.J. 465, 474 (1977). One author states, with specific reference to banks:
To afford themselves increased protection in the event that they must setoff prior to filing, banks should consider taking consensual security interests in their customers’ accounts where possible under applicable state law. [Citation omitted]. Since what was formerly a setoff could be converted into foreclosure and sale of collateral, the setoff provisions of the Code should not apply. However, such a foreclosure and sale occurring during the 90 days * * * before the filing would be subject to avoidance as a preference.
Bank Setoff, supra, at 227 (emphasis added).
We believe the rationale behind this distinction is persuasive. The drafters of section 553 “regard the right to offset as the equivalent of a perfected security interest.” Id. at 210 (citing H.R.Rep. No. 595, 95th Cong., 1st Sess. 185 (1977)), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6145. If the right was unperfected, the trustee, in its role as a hypothetical judicial lien creditor, see
We therefore conclude that
D. Trustee‘s Cross-Appeal Regarding Early Withdrawal Penalties.
Trustee argues that Bank should have credited Debtor‘s accounts with the amount of the early withdrawal penalties resulting from Bank‘s cancellation of the certificates of deposit on July 31, 1981.
Although briefed by both parties, the district court did not address this issue. We have already found, however, that Bank had a security interest in the certificates and that Bank validly foreclosed its interest. Therefore, Bank‘s application of the penalty proceeds becomes irrelevant to this action; although Debtor‘s deficiency might be adjusted, the handling of the penalty proceeds does not affect Bank‘s right to retain its collateral proceeds, nor does it affect Trustee‘s recovery of the amount offset against Debtor‘s unsecured accounts. Because further review of this question is unnecessary to sustain our judgment in the set-off case, we decline to address it. See Hutchinson Utilities Commission v. Curtiss-Wright Corp., 775 F.2d 231, 238 (8th Cir.1985).
E. Prejudgment Interest.
Bank contends that the district court erred in awarding interest from July 31, 1981, the date of set-off, rather than from January 6, 1984, the commencement date of this action. Because
Although case law on interest awards under section 553(b) is virtually non-existent, an analogy can be made to interest awards under other sections of the Bankruptcy Code. Under the old Bankruptcy Act and the present Bankruptcy Code, it is well-settled that interest awarded in a section 547 voidable preference action is computed from the date of demand for its return or in the absence of a demand, from the suit‘s commencement date. See, e.g., Kaufman v. Tredway, 195 U.S. 271, 273, 25 S.Ct. 33, 34, 49 L.Ed. 190 (1904); Palmer v. Radio Corp., 453 F.2d 1133, 1140 (5th Cir.1971); In re Independent Clearing House Co., 41 B.R. 985, 1015 (Bankr.D.Utah 1984). The rationale for the rule has been explained as follows:
The allowance of interest from the date demand is made or a proceeding instituted, rather than the date of the transfer, is based on the idea that until such time the preferred creditor cannot be said to hold the property wrongfully. * * * A transaction which results in a voidable preference is lawful when made but subject to the possibility of being defeated by subsequent events. It continues to be lawful unless it is followed by the filing of the bankruptcy petition within 90 days. It continues to be lawful after that time unless the trustee elects to avoid it. Until the trustee exercises his election and makes demand for transfer, the creditor‘s possession of the property is proper.
Clearinghouse, 41 B.R. at 1015.
This rationale is also applicable to actions brought under section 553(b). If a set-off occurs more than ninety days before filing of the bankruptcy petition, by its terms section 553(b) is inapplicable. If, however, a set-off occurs within the ninety-day period before filing, it is lawful under section 553(a) unless and until the trustee seeks to recover the creditor‘s “improvement in position,” if any, under section 553(b). Until the trustee makes a demand, the creditor‘s retention of the benefits of a set-off is proper. If the trustee makes no demand, filing of the action is deemed to be a demand.
Following this interest rule in the present case would also promote consistency in application of the Bankruptcy Code. Section 553(b)‘s “improvement in position” test is derived from the preference section of the old Bankruptcy Act. 4 Collier on Bankruptcy Sec. 553.15, at 553-58 (15th ed. 1986). While it is true that section 553 of the Code preserves the common-law right of set-off, section 553(b) creates a new federal statutory right in a trustee through application of the “improvement in position” test. Because the Trustee‘s cause of action under section 553(b) arises under federal bankruptcy law, the award of interest should be so governed. Accordingly, we reverse the award of interest insofar as it requires payment from July 31, 1981, the date of set-off.
III. DISCUSSION: THE TURNOVER CASE.
Bank maintains that the district court erred as a matter of law in granting Trustee‘s motion for summary judgment and ordering turnover of the postpetition certificate of deposit to Trustee. Bank contends that the certificate is not subject to turnover under
Section 549(a) of the Bankruptcy Code,
In this case, Debtor wire-transferred $250,000 to Bank on November 6, 1981, which Bank used to fund a certificate of deposit in Debtor‘s name. Additionally, on or about this date, Bank received the pledge and assignment documents relating to this certificate. It is clear that both of these transfers were made long after the filing of the bankruptcy petition--August 31, 1981--and without the authorization of the bankruptcy court. Therefore, any liens on the certificate created by the pledge or assignment are avoidable by Trustee under section 549(a). See
Bank contends, however, that
In its letter dated February 18, 1982, Bank in effect promised Trustee that it would turn over the postpetition certificate of deposit to Trustee at some point in the future. In fact, a Bank officer admitted in his deposition, which was subsequently introduced into evidence at trial, that the certificate was properly owing to Trustee. Apparently, Trustee relied on Bank‘s representation; otherwise he probably would have instituted a recovery action before the two-year period expired.24 To allow Bank to keep the proceeds of the certificate in light of the fact that Bank promised its return and admits that the certificate is owing to Trustee, would be both inequitable and unjust. Although this issue has not been placed before us, we believe that these facts make out a clear case for application of the doctrine of equitable estoppel, in order to prevent Bank from obtaining a benefit to which Trustee clearly has the superior right. See Stafford v. Ford Motor Co., 790 F.2d 702, 706 (8th Cir.1986) (appellate court may resolve an issue not passed on below where injustice might otherwise result).
Courts have invoked the doctrine of equitable estoppel to bar a defendant from asserting a statute of limitations defense where the claimant was aware of the existence of a federal cause of action, but because of the defendant‘s representations, the claimant failed to file an action within the act‘s limitations period. E.g., Glus v. Brooklyn Eastern District Terminal, 359 U.S. 231, 79 S.Ct. 760, 3 L.Ed.2d 770 (1959) (late filing under Federal Employers’ Liability Act, Sec. 6,
This doctrine, however, is not applicable to the time limits of every federal statute; only where the time limits are in the nature of a true statute of limitations will it apply. In that case, the statute is a mere affirmative defense, and thus, is subject to equitable considerations such as estoppel and waiver. See, e.g., Tapper v. Commissioner, 766 F.2d 401, 403 (9th Cir.1985); EEOC v. Nicholson File Co., 408 F.Supp. 229, 232 (D.Conn.1976). On the other hand, where the time limits are jurisdictional, or where
Although we are unaware of a court specifically holding that the doctrine of equitable estoppel is applicable to the time limits in
To invoke the doctrine, it is not necessary to find that Bank intentionally misled Trustee, but rather, that Trustee reasonably relied on Bank‘s representations in forbearing suit. See Bomba, 579 F.2d at 1071; United States v. Fidelity & Casualty Co., 402 F.2d 893, 898 (4th Cir.1968). Many courts have specifically held that a promise to pay a claim estops a defendant from asserting the limitations defense if the claimant relied in good faith on that promise. E.g., United States v. Reliance Insurance Co., 436 F.2d 1366, 1370 (10th Cir.1971); Fidelity, 402 F.2d at 897; United States v. Continental Casualty Co., 357 F.Supp. 795, 800 (E.D.La.1973).
Here, the facts indicate that Trustee did rely on Bank‘s representations in forbearing suit. Bank is a commercial institution, and therefore, Trustee would have ample reason to believe that Bank would keep its promise, if for no other reason than to preserve its reputation. Moreover, although the period between the communications and the filing date is lengthy, we take judicial notice of the fact that Trustee did institute a similar suit prior to the expiration of the limitations period. These facts lead us to believe that Trustee relied on Bank‘s promise, and, when he realized that Bank was not going to honor its promise and that the limitations period was about to expire, Trustee filed suit, albeit in a different court. The evidence here does not permit an “inference that the delay was due to factors other than [Bank‘s] representations and inducements.” Reliance Insurance Co., 436 F.2d at 1370. To allow Bank to recover would not only be inequitable, but would set an unhealthy precedent for future cases.
We therefore hold that Bank is equitably estopped from asserting section 549(d) as a defense to Trustee‘s recovery, and that the transfers made by Debtor on or about November 6, 1981 are avoidable by Trustee under
IV. DISCUSSION: WRONGFUL PROFITS.
Although we have reviewed Trustee‘s claim that Bank is wrongfully profiting from the retention of the monies invested as a result of Bank‘s actions on July 31, 1981 and November 6, 1981, we find that Trustee‘s argument lacks merit in both law and fact. Accordingly, we decline to address this issue.
We hold that the district court erred as a matter of law in applying
Notes
The repurchase agreements in this case involved loans of money by Debtor to Bank which Bank promised to repay, with interest, on a specified date. The repurchase agreements were backed by government securities and were generally issued for shorter terms than the certificates of deposit.
Debtor also maintained checking, savings and demand deposit accounts at the Bank.
As collateral security for the payment and discharge of all indebtedness, obligations and liabilities of [Debtor] to Bank, howsoever created, * * * [Debtor] hereby grants to Bank a security interest in the following property together with all the rights related thereto * * *: the property described on the reverse side hereof; the property described in any other Security and Pledge Agreement executed by [Debtor]; all other property of [Debtor] of every kind and description now or hereafter and howsoever in the control and possession of Bank * * *.
Mark Twain, 57 B.R. at 375 (emphasis supplied by district court).
The record also indicates that these three certificates were periodically rolled over by Bank, and were in Bank‘s possession on July 31, 1981. Additionally, although the record is unclear, it appears that the certificate which was listed on the March 20, 1979 agreement was one of these three certificates.
Mark Twain, 57 B.R. at 376, the record and a later part of the opinion indicate that the correct amount is $200,000. Id. at 377 (“$200,000, which represented the face amount of the certificate of deposit # 1978, dated July 30, 1981“).
Amount Representing ------ ------------ $1,000,000 Funds in Debtor‘s repurchase agreement dated 7/27/81 1,778 Interest on above funds 200,000 Face amount of certificate of deposit dated 7/30/81 1,500,000 Principal balance of a certificate of deposit, plus, interest, less penalty 175,000 Principal balance of a certificate of deposit, plus interest, less penalty 350,000 Principal balance of a certificate of deposit, plus interest, less penalty 8,112 Balance of Debtor‘s checking and saving accounts 445,176 Balance in Debtor‘s demand deposit accounts
See Mark Twain, 57 B.R. at 377. The two following facts should be noted. First, the three undated certificates of deposit--valued at $1,500,000, $175,000, and $350,000--appear to be the same three certificates held by Bank on June 1, 1981, which were subsequently rolled over and listed on the June 29, 1981 agreement. Second, the value of the demand deposit accounts listed above is correct. The district court originally stated this amount as $455,176, see id. at 377, but subsequently amended the amount to $445,176 because of mathematical error. Smith v. Mark Twain Nat‘l Bank, No. 84-0031-C(4) (Order dated Feb. 3, 1986).
(1) Except with respect to a setoff of a kind described in 362(b)(6), 362(b)(7), 365(h)(2), or 365(i)(2) of this title, if a creditor offsets a mutual debt owing to the debtor against a claim against the debtor on or within 90 days before the date of the filing of the petition, then the trustee may recover from such creditor the amount so offset to the extent that any insufficiency on the date of such setoff is less than the insufficiency on the later of--
(A) 90 days before the date of the filing of the petition; and
(B) the first date during the 90 days immediately preceding the date of the filing of the petition on which there is an insufficiency.
(2) In this subsection, “insufficiency” means amount, if any, by which a claim against the debtor exceeds a mutual debt owing to the debtor by the holder of such claim.
In this case, the district court applied section 553(b) to Bank‘s actions on July 31, 1981 with respect to all of Debtor‘s accounts held by Bank. See Mark Twain, 57 B.R. at 378-79. Bank‘s contention raises the question of whether this section should have been applied only to Debtor‘s unsecured accounts--the checking, savings, and demand deposit accounts.
(1) Except as otherwise provided in subsection (2), an unperfected security interest is subordinate to the rights of * * * (b) a person who becomes a lien creditor without knowledge of the security interest and before it is perfected;
* * *
(3) A “lien creditor” means a creditor who has acquired a lien on the property involved by attachment, levy or the like and includes * * * a trustee in bankruptcy from the date of the filing of the petition * * *.
Furthermore, Trustee‘s reliance on In re Amco Products, Inc., 17 B.R. 758 (Bankr.W.D.Mo.1982), rev‘d, 50 B.R. 723 (W.D.Mo.1983), is misplaced. Trustee misinterprets the language in Amco Products in concluding that that court impliedly held that certificates of deposit are excluded from Article 9 coverage. Although it is true that Article 9 does not apply to “any deposit, savings, passbook or like account maintained with a bank, savings and loan association, credit union or like organizaiton,”
(1) A financing statement must be filed to perfect all security interests except the following:
(a) a security interest in collateral in possession of the secured party under section 400.9-305 * * *.
A security interest in instruments * * * can be perfected only by the secured party‘s taking possession, except as provided in subsections (4) and (5).
A security interest in * * * instruments * * * may be perfected by the secured party‘s taking possession of the collateral * * *.
(1) When a debtor is in default under a security agreement, a secured party has the rights and remedies provided in this part and except as limited by subsection (3) those provided in the security agreement. He may reduce his claim to judgment, foreclose or otherwise enforce the security interest by any available judicial procedure.
Additionally, although the security agreement provided for a “full right of setoff,” Bank was not required to set-off, since the parties did not limit Bank‘s rights and remedies solely to the right of set-off. See