Memorandum of Decision Re: Avoidance of Security Interest

IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re THE VILLAGE INN, INC.,                                       No.1-86-00268      Debtor. ________________________/ J. TAYLOR HALEY, Trustee,      Plaintiff,    v.                                                                              A.P. No. 1-87-0120 THOMAS E. FLOWERS and KOKO FUJITA,      Defendants. __________________________/
Memorandum of Decision
     Over a year before the debtor filed its bankruptcy petition, defendants Thomas Flowers and Koko Fujita loaned it $45,000.00, to be secured by the debtor's real and personal property. However, the financing statement perfecting the interest in the personal property (furnishings of the debtor's inn) was not filed with the Secretary of State until sixty days before the bankruptcy. Since the date of a transfer for preference purposes is the date of perfection of a security interest (section 547(e)(2)(B) of the Bankruptcy Code), the transfer was clearly within thepreference period. The presumption of insolvency pursuant to section 547(f) was not contested.      The debtor's inn had been operated as a proprietorship of its principal shareholders prior to incorporation in 1982. Flowers and Fujita admit that at the time they made loan it was represented to them, and they believed, that all of the personal property was owned by the corporation. The personal property was described in the financing statement, depreciated in the corporation's tax returns, and listed as corporate assets in the bankruptcy schedules. However, Flowers and Fujita now claim that the property was owned by the shareholders individually.      The only evidence questioning the ownership of the property is a declaration of the corporation's president, Charles Stinnett, dated August 27, 1987, in which he declares that the personal property was never actually transferred to the corporation. This is at odds with his present testimony that the property in question is corporate property and that most of it was purchased with corporate funds after incorporation. He explains that the prior declaration was prepared by Flowers, who forced him to sign it under threat of eviction and other actions Flowers could take against him.      The Court has no trouble finding that Stinnett's present testimony is the more truthful account. The demeanor demonstrated by Flowers at the trial makes it clear to the Court that he was capable of the acts alleged by Stinnett. This finding explains away the sole evidence inconsistent with the debtor's title to the property.      Moreover, the Court would still find the property was owned by the corporation even if Stinnett had stuck by his prior declaration. There need not have been a formal assignment of the property in order for the Court to find that assignment was intended. Bergin v. Van der Steen (1951) 107 Cal.App.2d 8, 16. It is clear from the representations made to Flowers and Fujita, as well as the listing of the property as corporate assets in the tax returns and bankruptcy papers, that the property was intended to be corporate property. Even where record title is in a corporate officer, the property may nonetheless be found to belong to the corporation. In re John Algiere, Inc. (Bkrtcy.D.R.I.1982) 20 B.R. 615.      The evidence as to the value of the property is weak. Stinnett testified without going into much detail that it was worth $9,000.00, while Flowers and Fujita produced an expert with weak credentials who valued the property, other than air conditioners and stoves, at $2,329.00. He valued the stoves separately at $80 to $125 each. The Court finds the testimony offered by defendants slightly more believable than Stinnett's as to value, and accordingly finds the value of the property, including the stoves, to be $3204.00.      There is no merit to the argument that the free-standing gas stoves are fixtures and not personal property. The mere fact that a stove is hooked up to a gas line does not make it a fixture. Daniger v. Hunter (1952) 114 Cal.App.2d 796, 798. However, the Court agrees that the air conditioners have become fixtures.      The transfer of the security interest in the personal property, including the stoves, is accordingly avoided as a preference. Due to the length of time which has passed since the transfer and the Court's adoption of defendants' valuation of the property, the Court will award its value, rather than the actual property, pursuant to section 550(a) of the Bankruptcy Code. Judgment shall therefore be entered in favor of the Trustee and against both Flowers and Fujita in the sum of $3,204.00, plus the Trustee's costs of suit.      Counsel for the Trustee shall prepare and submit a form of judgment consistent with this decision. This memorandum constitutes findings and conclusions pursuant to FRCP 52(a) and Bankruptcy Rule 7052.
Dated: February 10, 1988                                                                              _____________________                                                                                                                      Alan Jaroslovsky                                                                                                                      U.S. Bankruptcy