Bankruptcy - Uniform Trust Receipts Act - Rights of Entruster to a Lien Interest in the General Assets of Bankrupt Trustee

Authors

Barry I. Fredericks, University of Michigan Law School

Abstract

Plaintiff, a credit corporation, used a trust receipt arrangement to finance a car dealer, who thereafter sold a number of the entrusted cars (out of trust sales) without remitting the proceeds to plaintiff. In order to restore some of these proceeds, which had been dissipated in the course of running his business, the car dealer gave plaintiff a trust receipt on ten unencumbered trucks in its possession, in release of part of plaintiff's security interest under the first trust receipts. Plaintiff later sold these ten trucks. Subsequently, in the course of bankruptcy proceedings filed against the car dealer, plaintiff sought to assert a prior lien on the bankrupt's general assets to recover the value of the dissipated proceeds from the original out of trust sales, minus the value it sought to retain from the sale of the ten trucks. On appeal from an order denying plaintiff's claim, held, affirmed. A trust receipt gives no lien interest in the proceeds of out of trust sales under section 175 of the Illinois Trust Receipts Act. The act creates merely a priority interest in an entruster as to proceeds, which is denied preferential status under the Bankruptcy Act. Furthermore, because the second trust receipt covering the ten trucks was given for the release of such a priority interest, it constituted a transfer of property for an antecedent debt within the prohibition of section 60a of the Bankruptcy Act. In the Matter of Crosstown Motors, Inc., (7th Cir. 1959) 272 F. (2d) 224-.

Recommended Citation

Barry I. Fredericks, Bankruptcy - Uniform Trust Receipts Act - Rights of Entruster to a Lien Interest in the General Assets of Bankrupt Trustee, 58 Mich. L. Rev. 783 (1960).
Available at: https://repository.law.umich.edu/mlr/vol58/iss5/8