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Reasoning: The bankruptcy court made no findings with respect to the April loan. And, as for the November loan, the bankruptcy court made no finding of harm and the record does not support a finding that the creditors or the debtor were harmed by the November loan. In fact, the bankruptcy court found that the proceeds of the November loan were used to make payments to certain unsecured creditors. Furthermore, the creditors that were not paid with the Loans did not advance an argument that they should have been paid with the Loans before the creditors that were actually paid. And, as to the guarantees, because no claim ever arose on the guarantees, no harm resulted. As for the deepening insolvency-type theory alleged by the trustee, the bankruptcy court did not accept the expert's testimony at the trial court level, and therefore, the record does not support such a theory. Alternatively, though, the court agrees with the Third Circuit that deepening insolvency is not a valid theory of damages nor as a cause of action.
Facts: Western Iowa Limestone, Inc. ("WIL") owned some quarries throughout Iowa. In January 2005, one of WIL's dealers, Independent Inputs, LLC bought 5,000 tons of agricultural lime ("ag lime") from WIL and in February 2005, Paul Leinen and Leinen, Inc. (together, "Leinen," and, with Independent Inputs, the "Dealers") bought 13,400 tons of ag lime. The Dealers paid for the ag lime at the time of the purchase and the bills of sale noted that the ag lime would remain at WIL's quarry until the Dealers sold the ag lime to their customers, at which time WIL trucked the ag lime to the ultimate customers. WIL kept the Dealers' ag lime in a single fungible pile on its premises. WIL filed for bankruptcy in December 2005. United Bank of Iowa (the "Bank") was WIL's largest secured creditor and it had a security interest in all of WIL's assets, including its inventory, to secure a $6 million loan. All of the Dealers' ag lime was not sold to customers at the time the Debtor declared bankruptcy. However, the ag lime on the Debtor's premises was sold in the bankruptcy as part of its inventory to pay off the Bank's loan. The Dealers objected to the disbursement of the proceeds of the sale and claimed priority over the Bank's security interest.
Issues: "Whether a buyer who purchases fungible goods from a seller but leaves the goods at the seller's premises satisfies the requirement that the buyer 'take possession of the goods'... [in other words,] whether constructive possession is within the meaning of the statute, and if so, whether the circumstances of this amount to constructive possession sufficient to confer BIOC [buyer in ordinary course] status." (If the Dealers have BIOC status, then, under Iowa UCC law, the Dealers take "free of a security interest created by the buyer's seller even if the security interest is perfected and the buyer knows of its existence.")
Rules: "'Possession' as used in Iowa UCC § 554.1201(9) includes constructive possession." And, "[b]ecause notice is not a requirement for possession under Iowa law... the Dealers constructively possessed the ag lime left at WIL's quarry based on the completed sale, the identification of the ag lime to the contract, and the agreement in the bill of sale between the Dealers and WIL that the ag lime would remain on WIL's premises until resold." Holding: Reverse the BAP and reinstate the bankruptcy court's opinion.
Reasoning: 'Possession' is not defined in Iowa law and construing possession to include constructive possession in addition to actual possession is consistent with the "demarcation and with the purpose of the BIOC status." Similar to situations in which possession of a good is entrusted to a bailee, the outcome should not differ just because possession of the goods are entrusted to the seller or to a third party bailee. As for notice, constructive possession is focused on the individual agreement between the parties as opposed to notice to the world of such possession.
Mayco Plastics v. TRW Vehicle Safety Systems, Inc. (In re Mayco Plastics, Inc.), 389 B.R. 7 (Bankr.
Facts: Mayco Plastics, Inc. (the "Debtor") filed for bankruptcy in September 2006. For around 10 years prior to the petition date, TRW and certain of its affiliates (collectively, "TRW") were customers of the Debtor for the manufacture and supply of certain parts. On the petition date, TRW
