Memorandum of Decision Re: Merchant Account

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Decisions
IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re WOODLAND VALLEY RANCH CO.,                                                 No. 95-10321 INC.,        Debtor. ___________________________/ WOODLAND VALLEY RANCH CO., INC.,        Plaintiff,    v.                                                                                                          A.P. No. 95-1063 BANK OF AMERICA, et al.,        Defendants. ______________________________/
Memorandum of Decision
     Debtor Woodland Valley Ranch Company, Inc. ("Woodland"), is the owner of a resort in Garberville, California. In May of 1994, it leased the resort to Scott Tree. Since Tree did not immediately establish a merchant credit account for deposits of credit card slips, Woodland agreed to let Tree use its account. Until the middle of July, Tree deposited his credit card slips into Woodland's account. Woodland deducted its rent and paid Tree the rest.      By late July, Tree became seriously delinquent in his rent and had stopped using Woodland's credit card account. Woodland became increasingly insistent upon payment, even threatening to terminate Tree's telephone service which was still in Woodland's name. In response to the demands for payment, Tree deposited a total of $14,900.00 in merchant credit card slips into Woodland's credit card account during the last two days of August and September 1.      Just after Tree made the above deposits, his own merchant account was finally opened. Tree then created credit vouchers totalling the $14,900.00 he had deposited and processed them through Woodland's account, seeking to undo the deposits. Bank of America at first transferred the funds to Tree's account, then froze them when Woodland howled as its checks started bouncing. Bank of America has interpleaded the funds. Tree assigned any rights he has in the funds to attorney Robert Zigler in January, 1995, as payment for unpaid legal fees. Zigler has intervened and is now the real party in interest. The only issue is whether the interpleaded funds belong to Woodland or Zigler.      The parties have cited no commercial law to cover the unusual situation they created. However, two facts appear clear. First, the nature of the deposits into Woodland's merchant account was different for the 8/30 - 9/1 deposits than for the deposits made in June and July. The earlier deposits were made because Woodland was allowing Tree to use its account as an accommodation. The deposits at issue here were made as a result of Woodland's demands for payment. The deposit of the $14,900.00 at issue here was intended by both parties to be a payment on account; use of the merchant account was not at that time intended to be a mere accommodation.      Second, the method by which Tree sought to get the funds back from Woodland was not justified by any law or agreement of the parties. The court can see no justification for this self-help mechanism. In fact, it appears to have been fraudulent.      For the above reasons, the court finds that the funds in question belong to Woodland. Judgment shall be entered in favor of Woodland, which shall recover its costs of suit from Zigler.      This memorandum constitutes the court's findings and conclusions pursuant to FRCP 52(a) and FRBP 7052. Counsel for Woodland shall submit an appropriate form of judgment forthwith.
Dated: November 6, 1995                                                                                                  _______________________                                                                                                                                                    Alan Jaroslovsky                                                                                                                                                    U.S. Bankruptcy