IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
ALGORAM COMPUTER PRODUCTS, INC., No. 586-00540 A
JEROME E. ROBERTSON, Trustee,
v. A.P. No. 880028
UNIVERSITY NATIONAL BANK, et al.,
Memorandum of Decision
The complaint in this matter alleges that while the debtor was insolvent and within one year before it
filed its Chapter 7 petition its principals caused the debtor to pay defendant Union National Bank
$240,000.00 in preference over other creditors because the Bank had the personal guaranties of the
The Trustee does not allege that the payments were made within ninety days of the filing, but
nonetheless seeks recovery from the Bank as well as the principals. He argues that the payments are
avoidable pursuant to section 547(b)(4)(B) of the Bankruptcy Code as insider preferences, and that the
Bank is jointly liable with the principals pursuant to section 550(a).
The Bank now seeks dismissal of the complaint as to it, arguing first that it is not liable as a matter of
law and second, if it is liable, that the Court should use its equitable powers to dismiss the complaint
Liability of Bank
While several bankruptcy courts have published opinions, no appellate court has rendered a published
decision to which the Court can look for guidance in this matter. Since the lower court decisions are split,
the Court must use its own judgment in reaching a decision.
Without reinventing the wheel, the Court is convinced by the reasoning in In re Big Three Transp., Inc.
(Bkrtcy.W.D.Ark.1983) 41 B.R. 16, and Pitts, "Insider Guaranties and the Law of Preferences," 55
Am.Bankr.L.J. 343 (1981). The Court agrees that the literal language of section 550(a) makes the Bank
liable, and the legislative history affords no grounds for deviating from the literal wording of the Code.
Indeed, the Court is not free to rely on legislative history to deviate from clear statutory language. Central
Trust Co. v. Creditor's Committee
(1982) 454 U.S. 354, 359-60.
The Court feels strongly that notwithstanding the cited passage from Collier
the Court has no equitable
power to except the Bank from liability once it has found that the Code imposes liability. Bankruptcy
courts must follow express statutory command to the same extent as court of law; in the absence of a
drafting error, courts are powerless to avoid the effects of the plain language of a statute. In re Shoreline
Concrete Co., Inc.
(9th Cir.1987) 831 F.2d 903, 905.
Moreover, the Court does not see the reason for giving the Bank equitable relief even if it had the
legitimate power to do so. If payments to banks are avoidable for a longer period of time when they have
taken personal guaranties, then the banks must merely weigh the advantages of such guaranties against
the increased possibility of avoidability. Just because in some cases the guaranty may work to the
disadvantage of the bank does not mean that application of the law to the bank is inequitable, especially
when the end result is a more even distribution of estate assets to all creditors.
For the foregoing reasons, the Bank's motion to dismiss will be denied. Counsel for the Trustee shall
submit an appropriate form of order.
Dated: April 28, 1988 _______________________