Summary:
Automotive Fiannce provided Ward’s car dealership with floor plan financing, which permitted the dealership to borrow funds to purchase cars for sale. The Automotive Finance would then hold a lien on such car, until the car, was sold and the dealership was required that it pay off the lien within 72 hours. Ward individually guarantied the obligations of the dealership under the floor plan agreement. At the time of filing the bankruptcy, the dealership had sold 4 car without paying of the liens. Automotive Finance brought an action to determine that guaranty nondischargable under 11 U.S.C. § 523(a)(6)
The bankruptcy court held that “the sale of property subject to a lien without the lienholder’s consent constitutes a “willful and malicious injury” for the purposes of § 523(a)(6).” United States v. Buck (In re Buck), 406 B.R. 703, 705-706 (Bankr. E.D.N.C. 2009).
As § 523(a)(6) excepts from discharge debts “for willful and malicious injury,” the damages are a tort, not a contractual breach. Accordingly, as the property that was subject to a lien was sold without the consent of Automotive Finance, the amount that is nondischargable is “the lesser of the value of the lien and the value of the property sold.” The auction values were $52,609, rather than the sales price of $108,088.
Commentary:
Perhaps Automotive Finance should include a liquidated damages provision in its future floor financing agreements providing that the sale value is the amount of any claim. While such a provision would not necessary preclude dispute over whether it was a reasonable provision, it would shift the debate.
For a copy of the opinion, please see:
Automotive Finance v. Ward.- Sale of Property without Consent of Lienholder.pdf
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