Annas v. Allard, 272 B.R. 633
This case is a little older, but a great start to this blog.
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In early September, 1999, the debtor was golfing with three friends when they realized that the golf course had a tournament prize for anyone who hit a hole-in-one. Prior to swinging, the four men promised that they would split any prize that they won. Debtor swung, and his golf game was very good that day— he hit a hole-in-one and won a brand new Cadillac Escalade valued at almost $36,000.
By late September, debtor’s luck had run out, and he filed bankruptcy. As of the petition date, Debtor had not yet received the Cadillac; an investigation was pending by the insurance company retained by the tournament and liable under a policy to purchase the Cadillac from Don Massey Cadillac if a participant made a hole-in-one on the 8th hole. Once debtor received his prize (after filing bankruptcy), debtor was true to his word. Debtor and another of his golfing buddies, Annas, divided the value of the car evenly between the four. Each man received their share of the value of the prize.
At the Section 341 meeting of creditors, the Trustee inquired about his prize. The Trustee then sent notice to each of the other three golfing buddies requesting the return of their share of the prize money. The trustee claimed that the money paid to the other three was property of the debtor’s estate on the date of his bankruptcy petition, and that the debtor improperly transferred them money from estate assets, giving rise to an avoidance action under 11 U.S.C. 549(a). (This section allows a trustee to get money or property back.)
The District Court had to decide whether there was an unauthorized transfer of property of the estate to the debtor’s golfing buddies (whom the court considers creditors) after the debtor filed bankruptcy. As a general rule in bankruptcy, creditors are paid pro-rata based on their priority as defined in the Bankruptcy Code.
First, the Court found that the debtor and the golfing buddies did not have an equal ownership interest in the prize. Instead, debtor won the prize, and the “debtor liquidated his individual interest in the vehicle immediately upon possession.”
Second, the Court found that the golfing buddies did not obtain an ownership interest in the Cadillac by virtue of their oral agreement to share any prizes won at the tournament. Instead, the District Court agreed with the Bankruptcy court that “the conduct of Debtor and Appellants is more indicative of their intent to share the value of the car rather than its ownership.”
Third, the Court found that the agreement between the parties had sufficient consideration, but the debtor could not perform until he gained possession of the Cadillac.
The Court then cited another case:
“[w]hen it is the nonbankrupt party who has substantially performed so that its failure to complete performance would not constitute a material breach excusing performance of the debtor, the nonbankrupt party is relegated to the position of a general creditor of the bankrupt estate.”
In other words, the golfing buddies were simply creditors of the debtor. As creditors, they were recipients of the value of estate property (the car) after the debtor filed bankruptcy.
As a result, Trustee was entitled to avoid the transfer of the Cadillac from Debtor to Annas and the payments of $9,000 made to Carreri and DeAngelo under 11 U.S.C. § 549(a) as unauthorized postpetition transactions.