Opinion
No. 73-B-1242
May 5, 1980
Former Bankruptcy Act — Debts Having Priority — Constructive Trust — General Creditor
Since a creditor failed to prove the existence of a trust, by presenting evidence which would have "traced" the funds owed him, the trustee's motion to reclassify this claimant as a general creditor rather than a priority creditor was granted. See Sec 64 at ¶ 2624 and Sec. 507(a) at ¶ 9026.
[Digest of Opinion]
The bankrupt, who was doing business as a freight forwarder and customs house broker, provided the creditor with services of organizing freight charges and facilitating customs entry. From two of the bankrupt's invoices, which represent the invoices in controversy, the customs duty charge was included as "one" of the items. It was undisputed that the debtor failed to pay all of the customs duties for which the creditor was invoiced.
After the debtor had filed a petition and executed the assignment for the benefit of creditors, the creditor paid the outstanding customs duties directly in an attempt to redeem its property.
The creditor based his priority claim on a trust fund conversion theory.
However, the court found this theory to be inapplicable to the instant case, as recovery from a trust fund is distinguishable from the "concept" of priority. Section 64 does not give priority to the beneficiary of a trust fund.
The court noted that if it were to strain so as to treat the creditor's proof of claim as an application to impress a trust, the creditor would fare no better, since there was nothing in the record, nor did he put forth any facts that would suggest the creation of an express trust, or the intention to create such a trust, for the customs duties. If a constructive trust was created, the creditor must be able to trace the proceeds into an account of the bankrupt. Accordingly, the court held that the creditor failed to meet the requisites necessary to establish a constructive trust, or other equitable remedy. Therefore, the trustee's claim to reclassify the creditor was granted.