Cite as: [Unpublished]
L. Stanton, Plaintiff, v.
Robert R. Reddick, Defendant
(In re Robert R. Reddick, Debtor)
Bankruptcy Case No. 91-00994-7, Adv. Case. No. A91-1137-7
United States Bankruptcy Court
W.D. Wisconsin, Eau Claire Division
November 13, 1991
James M. Isaacson, for the plaintiff.
Charles V. Feltes, for the defendant.
Thomas S. Utschig, United States Bankruptcy Judge.
MEMORANDUM OPINION, FINDINGS OF FACT,
AND CONCLUSIONS OF LAW
This matter comes before the Court on a complaint and objection to discharge filed by
Gary L. Stanton. Plaintiff Stanton seeks to recover a debt of $1,659.08 from the debtor
for tools sold to him on credit. The plaintiff asserts that he has a valid purchase money
security interest in the tools at issue. The debtor-defendant, Robert R. Reddick, counters
that his debt to Stanton is dischargeable in bankruptcy and raises several arguments in
support of this contention. The plaintiff is represented by James M. Isaacson, the
defendant by Charles V. Feltes.
The parties have stipulated to the following facts:
1. That the plaintiff Gary L. Stanton resides at 314 Columbia Street, Mondovi,
Wisconsin. That at all times relevant herein and presently, he is a dealer for
"Snap-on Tools Corporation" and is engaged in the sale of tools.
2. That the defendant Robert R. Reddick resides at 723 East Thomas St., Osseo,
Wisconsin 54758. That at all times relevant herein and presently, he is a mechanic by
trade. That at all times relevant herein the defendant Reddick uses the tools and tool box
involved in this action in his trade.
3. That plaintiff Stanton makes weekly rounds with an equipment truck selling and
distributing mechanic tools.
4. That on October 25, 1990, plaintiff Stanton called on a garage in Osseo, Wisconsin,
where defendant Reddick had recently become employed. On that first meeting defendant
Reddick purchased $1,597.79 worth of tools from Stanton and gave plaintiff Stanton a
signed agreement purporting to be a purchase money security agreement. This agreement is
part of the invoice dated October 25, 1990. That invoice also includes a carry-over
balance of $140.00, representing the debtor's outstanding balance with another Snap-on
5. That plaintiff Stanton called on defendant Reddick again a week later on November 1,
1990, and defendant Reddick bought an additional $203.13 worth of new tools. That
defendant Reddick did not sign the purchase money security agreement which was part of the
invoice dated November 1, 1990.
6. That defendant Reddick subsequently changed jobs and became employed as a mechanic
by Peterson Implement Company in Whitehall, Wisconsin. That Whitehall, Wisconsin, is in a
different Snap-on sales district which is serviced by a Snap-on dealer by the name of
7. That thereafter Mr. Herbison sold additional tools to the defendant Reddick and
acted as plaintiff Stanton's agent in the collection of the account due the plaintiff.
That Mr. Herbison's ledger record regarding sales to and payment received from defendant
Reddick has as its beginning balance the sum of $1,951.09 as of November 1, 1990. This
amount is also the "Closing" balance on Mr. Reddick's account while it was being
handled by the plaintiff Stanton.
8. That there were a total of seven Snap-on receipts prepared by Mr. Herbison which
were given to defendant Reddick. These receipts reflect the plaintiff Stanton's carry-over
balance on the Reddick account (i.e. $1,951.08) and subsequent sales to and payments made
by defendant Reddick on his Snap-on account while it was being handled by Mr. Herbison.
9. That by virtue of plaintiff's dealership Agreement with Snap-on Tools Corporation,
he is responsible for all sums sold by him to the defendant Reddick.
10. That the defendant Reddick filed a Chapter 7 bankruptcy petition on March 25, 1991.
That in Schedule B-4 (Property Claimed Exempt) the defendant claimed the secured tools and
tool box as exempt.
11. That the plaintiff Stanton never filed any Financing Statement in relation to the
secured tools and tool box with the Office of the Register of Deeds, Secretary of State or
otherwise. That at all times relevant herein, the tools and tool box subject to this
action have been in the defendant's possession.
The debtor raises three arguments in support of his assertion that the debt to the
plaintiff is dischargeable. First, the debtor argues that the plaintiff's lien in the
tools and tool box is voidable. Reduced to its essentials, the debtor argues that, since
the plaintiff's security interest is unperfected, the bankruptcy trustee has priority over
this interest. The debtor bases this argument on 11 U.S.C. § 544, which gives the trustee
lien creditor status in certain circumstances and powers of avoidance against inferior
liens on the basis of that status. The debtor cites several cases for the proposition that
the trustee, by virtue of his § 544 avoiding powers, takes priority over an unperfected
security interest. See Andriacchi's, Inc. v. Pike (In re Pike), 62
B.R. 765 (W.D. Mich. 1986); Navarro v. Lucas (In re K & A Servicing, Inc.),
47 B.R. 807 (Bankr. N.D. Tex. 1985); McDonald v. Nat'l Bank of Stigler (In re
Hill), 7 B.R. 433 (Bankr. W.D. Okla. 1980). The debtor then asserts that if the
trustee can avoid a lien under § 544, then the debtor can do likewise pursuant to 11
U.S.C. § 522(c) in order to preserve an exemption. Thus, the argument concludes, the
plaintiff's security interest is voidable.
The Court finds the debtor's assertions to be a misstatement of the law and therefore
without merit. Contrary to the debtor's assertion, 11 U.S.C. § 522(c) does not give the
debtor the same avoiding powers that the trustee has under § 544. § 522(c) merely limits
the property in which the debtor can successfully claim an exemption. The provisions which
address the avoiding powers of the debtor in cases in which the trustee chooses not to
assert his avoiding powers are § 522(g) and (h). Without citing those sections in their
entirety, it is sufficient to note that they do not help the debtor's cause herein since
§ 522(g) specifically excludes property [here, the security interest] which the debtor
voluntarily transferred. See 11 U.S.C. § 522(g)(1)(A) (West 1991). Since the
debtor voluntarily granted the security interest to the plaintiff, those provisions do not
help the debtor's cause here. These are the only provisions which empower a debtor to act
in lieu of trustee action pursuant to § 544. The debtor's argument based on § 522(c) and
§ 544 is therefore without merit.
As his second argument, the debtor asserts that he can avoid the plaintiff's lien
pursuant to 11 U.S.C. § 522(f). That provision provides:
(f) Notwithstanding any waiver of exemptions,
the debtor may avoid the fixing of a lien on an interest of the debtor in property to the
extent that such lien impairs an exemption to which the debtor would have been entitled
under subsection (b) of this section, if such lien is--
(1) a judicial lien; or
(2) a nonpossessory, nonpurchase-money
security interest in any--
(A) household furnishings, household goods,
wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry that
are held primarily for the personal, family, or household use of the debtor or a dependent
of the debtor;
(B) implements, professional books, or tools,
of the trade of the debtor or the trade of a dependent of the debtor; or
(C) professionally prescribed health aids for
the debtor or a dependent of the debtor.
11 U.S.C. § 522(f) (West 1991).
The key issue as to this argument is whether the plaintiff's interest is a purchase
money security interest so as to be nonavoidable pursuant to § 522(f)(2). The sales
documents submitted to the Court all contain language that the purchaser (of the tools)
agrees that "[t]he Snap-on dealer . . . shall retain a Purchase Money Security
Interest in the tools sold to me and listed above until I have made all the promised
payments . . . ." This language is sufficient to establish a purchase money security
interest on behalf of the plaintiff under Wisconsin law. See WIS. STAT. ANN. §
409.107(1) (West 1964).
The Court must next determine the value of the tools in which the plaintiff retained a
purchase money security interest. By virtue of the sales invoice dated October 25, 1990,
containing the language cited above and signed by the debtor, the plaintiff retained a
security interest in $1,597.97 worth of tools. This was the value of the tools purchased
on that date and listed on that invoice; the plaintiff did not retain a purchase money
security interest in the prior balance of $140.00 carried over on that invoice. See
Stipulation as to Facts, Exhibit A. The next invoice is dated November 1, 1990, and
involved a purchase of $213.29 worth of tools. The debtor did not sign this invoice,
however, and therefore the plaintiff did not retain a security interest in the tools sold
on that day. See Stipulation as to Facts, Exhibit B; WIS. STAT. ANN. §
409.203(1)(a) (West Supp. 1991). The sale made on November 1, 1990, was the last sale
between the plaintiff and the debtor; several weeks later the debtor's account was
transferred to a different Snap-on dealer --Brian Herbison. All subsequent purchases of
the debtor were made from that dealer and the amounts of those purchases were added to the
debtor's prior balance under a revolving account agreement. Since Snap-on dealer Stanton
is the only plaintiff here, the Court need not concern itself with the subsequent
purchases of the debtor from Snap-on dealer Brian Herbison.
The debtor did, however, make payments totalling $340.00 on his account. See Stipulation
as to Facts, Exhibit C. Since the parties' security agreements do not specify how the
payments are to be applied, the Court will apply the payments pursuant to Wisconsin's
"first-in, first-out" payment provision. See WIS. STAT. ANN. §
422.418(3) (West 1988). Other courts have applied a "first-in, first-out" method
of allocation of payments where the security agreement at issue contained no payment
allocation clause. See, e.g., In re Gibson, 16 B.R. 257, 268-71 (Bankr. D.
Kan. 1981). See generally White & Summers, Uniform Commercial Code, §
24-9 at 332-334 (3rd ed. 1988). The $340.00 in payments will therefore be applied first to
the opening balance of $140.00 noted on the October 25, 1990, invoice. The remaining
$200.00 will be applied to the $1,597.79 in tools purchased on that day. The Court holds
that the plaintiff thus retained a security interest in $1,397.79 worth of tools.
The debtor contends, however, that the "Revolving Account Agreement" signed
by him at each purchase from Snap-on dealer Herbison constituted a consolidation of
several security agreements and thus operated to destroy the purchase-money nature of the
plaintiff's interest. The debtor cites In re Luczak, No. MM7-81-01230 (Bankr. W.D.
Wis. January 19, 1982) in support of this proposition. That court and numerous others have
held that where security agreements are consolidated, effectively combining antecedent or
after-acquired debt with new purchases under one contract, the purchase-money character of
the security interest is destroyed. See, e.g., SouthTrust Bank v. Borg-Warner
Acceptance Corp., 760 F.2d 1240 (11th Cir. 1985); Pristas v. Landaus of
Plymouth, Inc., 742 F.2d 797 (3rd Cir. 1984). See generally Clark, The Law
of Secured Transactions Under the Uniform Commercial Code para. 12.02 at 12-8 - 12-10
(2nd ed. 1988). The Court has examined numerous cases that have so held and finds the
present case factually distinguishable from them. Those cases almost always involved
security agreements containing after-acquired property clauses or cross-collateralization
clauses; or they involved the consolidation of separate security agreements into a new
one. Here, there is no cross-collateralization clause or after-acquired property clause
whatsoever. There was also no consolidation of the individual security agreements. Each
purchase involved a separate purchase money security interest only for those items bought
at that particular purchase transaction. The only thing that was consolidated was the
outstanding balance from the various purchases by the debtor from the Snap-on dealers.
Thus there was no effort to have a particular item of collateral secure more than its
purchase price. Other courts have reached the same result under similar facts. See,
e.g., Breakiron v. Montgomery Ward (In re Breakiron), 32 B.R. 400
(Bankr. W.D. Pa. 1983). Accordingly, the Court holds that the plaintiff retained a
purchase money security interest in $1,397.79 worth of tools purchased on October 25,
1990. The debtor, therefore, cannot avoid the plaintiff's lien to that extent pursuant to
11 U.S.C. § 522(f).
The debtor's third and final argument is that the plaintiff's claim is barred under
Bankruptcy Rule 4003(b). The debtor contends that the plaintiff failed to object to his
list of claimed exemptions within 30 days of the first meeting of creditors and the
plaintiff's claim is thus barred. Here too the debtor is in error. As a secured creditor,
the plaintiff was not required to object to the debtor's claim of exemptions since the
plaintiff holds a lien on the property at issue. § 522(c) provides that a debt secured by
a lien that is not avoided pursuant to § 522(f) or (g) is not exempt from creditors'
claims. See 11 U.S.C. § 522(c) (West 1991). The normal procedure in cases such as
this one is for the debtor to make a motion to avoid the plaintiff's lien pursuant to §
522(f). The plaintiff would then object and the matter would be decided at a hearing on
the § 522(f) motion. Merely because the plaintiff did not object to the debtor's claim of
exemptions does not allow the debtor to exempt property on which a creditor holds a
nonavoidable lien. See Robinson v. Olin Fed'l Credit Union, 48 B.R. 732, 738
(D. Conn. 1984); In re Staniforth, 116 B.R. 127, 130-31 (Bankr. W.D. Wis. 1990); In
re Mitchell, 80 B.R. 372, 374-80 (Bankr. W.D. Tex. 1987). The debtor's timeliness
argument is therefore without merit.
This matter is before the Court in a rather unorthodox posture -- namely that the
creditor-plaintiff has objected to the discharge of the debtor-defendant's debt to it. As
noted, the normal procedure would be for the debtor to make a § 522(f) lien-avoidance
motion and for the creditor to object. Because of the basis upon which the plaintiff filed
its complaint, the Court must deny its objection to discharge, since the debt at issue
here will be discharged in the debtor's bankruptcy. The plaintiff's lien, however, will
survive and pass through the bankruptcy as a nonavoidable purchase money security interest
in the amount of $1,397.79.
Accordingly, the plaintiff's objection to discharge is denied but it retains a
nonavoidable purchase money security interest in the subject property in the
This decision shall constitute findings of fact and conclusions of law pursuant to
Bankruptcy Rule 7052 and Rule 52 of the Federal Rules of Civil Procedure.