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In re Laguna Beach Motors Inc.

filed: September 23, 1992.

IN RE: LAGUNA BEACH MOTORS, INC., DEBTOR. R. NEIL RODGERS, TRUSTEE, APPELLANT,
v.
PAUL RAYMOND SCHNEIDER, APPELLEE.



Appeal from the United States Bankruptcy Court for the Central District of California. Honorable John E. Ryan, Bankruptcy Judge, Presiding. Bk. No. SA 88-00357 JR. Adv. No. SA 90-0051 JR

Before: Jones, Volinn and Ollason, Bankruptcy Judges

Author: Jones

The trial court held that the defendant in this preference action gave "new value" by executing a vehicle certificate of title in return for payment for a vehicle that the defendant had given to the debtor to sell and which the debtor had sold to a third party. The trustee argues that the sale to the third party transferred title to the vehicle and cut off the rights of the defendant in the vehicle. Thus, the trustee asserts that the defendant's execution of the certificate of title did not constitute new value. We agree with the trustee and reverse.

FACTUAL BACKGROUND

Debtor Laguna Beach Motors, Inc. ("LBM") was a retail auto seller. LBM obtained most of the vehicles it sold on an option basis from private parties.

On September 6, 1987,*fn1 Appellee Paul Schneider entered into a 30-day option agreement with LBM covering a 1985 BMW. The exercise price under the option agreement was $29,500. There were no liens on the car.

Schneider was advised by an employee of LBM that the car would be sold for at least $29,500, that LBM would contact him when the car was sold, and that Schneider would be paid the option price within 14 days of the sale. Schneider contacted LBM about the car several times and learned in October that it had been sold and turned over to the buyer. In late October, Schneider learned from the buyer, Henry Von Buren, that Von Buren had purchased the car on September 15*fn2 by trading in a Mercedes 450 SL and paying $14,500 in cash.

When Schneider confronted personnel at LBM, they agreed to pay him $10,000 "now" and the balance of $20,000 on or before November 16. LBM confirmed this agreement in a letter to Schneider dated November 10 which contained a check for $10,000. The check was dated November 16 and cleared LBM's account on November 20.

The second payment was not made by November 16 and Schneider and Von Buren confronted personnel at LBM on December 1. LBM gave Schneider a check for $21,500 and Schneider signed the certificate of title ("Certificate") for the BMW which was given to Von Buren. The latter check cleared LBM's bank account on December 2.

LBM filed a petition under Chapter 7 of the Bankruptcy Code*fn3 on January 20, 1988. The ninetieth (90th) day before the petition date was October 22, 1987. Thus, both of the payments by LBM to Schneider occurred within 90 days before LBM filed bankruptcy.

Trustee Neil Rodgers filed an adversary proceeding seeking to avoid the two payments to Schneider as preferential transfers under Bankruptcy Code § 547(b). Rodgers then filed a motion for summary judgment. After a hearing on that motion, the court granted summary judgment for Schneider. The basis for the court's ruling was that, by signing the title to the vehicle on December 1, Schneider had given new value and the payments he received were not preferences because of the "contemporaneous exchange for new value" exception provided by Bankruptcy Code § 547(c)(1).

After the court denied his motion for reconsideration, Rodgers timely filed this appeal.

ISSUE

Whether the trial court correctly held that Schneider's execution of the Certificate constituted a contemporaneous exchange for new value ...


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