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CourtListener is a project of Free Law Projecta federally-recognized c 3 non-profit. We rely on donations for our financial security. At the hearing held on March 18,the Court made findings of fact and granted the parties thirty days to file briefs as to whether a pre-petition attachment of moveable property constitutes a lien within the meaning of the laws of Puerto Rico. Quadrel is engaged in the business of leasing trailer tank trucks for the transportation of hazardous dp.r.581.
In November,Quadrel leased four trucks to debtor, three of which were later returned. To secure payment d.p.r.581 the judgment, Quadrel obtained a garnishment on personal property of debtor. Quadrel later obtained a second garnishment on personal property of debtor pursuant to Rule 56 of the Puerto Rico Rules of Civil Procedure. The Superior Court proceeding was stayed by debtor’s filing of his petition.
Quadrel argues that the automatic stay should be lifted for cause, in that debtor’s petition was filed in bad faith in order to stop the proceedings in Superior D.p.g.581. Specifically, Quadrel argues that it lacks adequate protection of its interest in the property because the amount of its claim exceeds the security.
Furthermore, Quadrel points out that the value of the truck is declining and .dp.r.581 amount owed for lost revenue on the missing truck is increasing.
Quadrel further argues that debtor has no equity in the property and that the property is not necessary for effective reorganization. Debtor has no equity in the truck because the amount secured by its attachment far exceeds its fair market value. Quadrel argues that the truck must not be necessary to the effective reorganization of the estate, or the debtor would have obtained another judicial bond to release it.
Debtor alleges that Quadrel does not have a valid lien because a final judgment has not been entered by the Superior Court and that therefore Quadrel is not a secured creditor and is not entitled to lift the automatic stay. They argue that Quadrel has an unfair advantage over the other unsecured creditors by virtue of their attachment, and that lifting the automatic stay would strengthen this unfair advantage and be detrimental to the estate.
The Bankruptcy Code provides that the filing of a bankruptcy petition operates as a stay of “any act to create, perfect or enforce any lien against property of the estate;” and of “any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case.
The term “lien” is defined as a “charge against or interest in property to secure payment of a debt or performance of an obligation. The Bankruptcy Code provides for three types of liens: A “judicial lien” is 995 lien “obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.
The court must look to the laws of the state in which the writ of attachment issues in order to determine if a creditor has acquired a lien on attached real property. The Bankruptcy Code further provides that, upon request of a party in interest, and after notice and a hearing, the court may grant relief from the automatic stay:.
Section also states that in any hearing concerning relief from the automatic stay, “the party requesting such relief has the burden of proof on the issue of the debtor’s equity in property.
In re Seijo Custodio, 74 B. In each of those cases a creditor with a collection action pending before the local courts had recorded a cautionary notice in the registry of property pursuant to Puerto Rico law but e.p.r.581 not obtained a final judgment before the debtor’s bankruptcy petition was filed.
The undersigned bankruptcy judge held that a cautionary notice is not a judicial lien within the meaning d.p.r5.81 11 U. Therefore, the creditors were not secured within the meaning of 11 U. The Court relied on Correa Sanchez v. The court held “[t]he so-called pre-judgment attachment lien on real property creates an inchoate lien unperfected until entry of a valid final judgment.
The perfected lien relates back in priority to the date of the pre-judgment attachment, but it secures the judgment, not the unsecured provable debt. However, the court in Posner was relying on one of a series of Supreme Court d.pp.r.581 involving priority disputes between federal tax liens and various non-federal liens.
There the court held that a recorded prejudgment attachment obtained under Puerto Rico law constituted a valid, perfected judicial lien. The case involved a motion to lift stay by the Federal Deposit Insurance Co. Before judgment could be entered in the collection action the debtor filed a bankruptcy petition which stayed the proceedings in the district court. A judicial lien is defined as a “lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.
The court in Moscoso Villaronga found that the obtention of a prejudgment writ of attachment and the recording of the same in the property registry according to Puerto Rico law constitutes a “legal or equitable process or proceeding” by which a judicial lien may be d.p.r.81, and that therefore the term “judicial lien” encompasses a pre-judgment writ of attachment as obtained under Puerto Rico law.
Other courts have found that the term “judicial lien” as defined in the Bankruptcy Code includes a prejudgment attachment. In re Figy, B.
D.p.r. 581 95 pdf
Utah ; In re Minton Group, Inc. The court in Moscoso Villaronga further found that the judicial lien created by the prejudgment attachment was valid and perfected. Although the prejudgment attachment is inchoate, the entry of final judgment does not perfect the attachment lien by creating it, but rather by removing its contingent character. Thus, the term “perfects”, as used by the courts, refers to the enforceability, not the validity of the lien.
See also Cohen v. Upon entry of final judgment in an action in which a prejudgment attachment exists upon real property, the attachment lien merges with the judgment lien in the sense that there cannot be two separate and distinct liens against the same property to guarantee the same judgment; the attachment lien continues in existence once judgment is entered to preserve the lien’s priority.
Moscoso Villaronga, B. The entry of final judgment perfects the inchoate attachment lien, which thereby relates back to the date of its entry. D.p.r.5581in which the First Circuit Court of Appeals held that a prejudgment attachment of personal property under the laws of Puerto Rico creates a valid lien.
Succession Ramos, 23 P. Although Yumet involved a prior version of the Puerto Rico Code of Civil Procedure the language is substantially similar to the present version.
Debtors argue that the decisions of the Supreme Court of Puerto Rico relied upon by the court in Yumet have been clarified by subsequent decisions which establish that under Puerto Rico law a pre-judgment attachment is perfected by execution of the final judgment.
However, the opinions cited are not so clear. Superior Court of Puerto Rico, 99 D. Metropolitan consented to judgment, which was subsequently entered along with a writ of execution. However, neither of these cases hold that a prejudgment attachment is perfected by the entry of final judgment.
Yumet has been followed in subsequent opinions of the first circuit and is still good law. Samac Motor Corporation, 92 D. That case was a collection action in which an attachment was levied against machinery and other personal property d.p.r.851 the defendant corporation, which subsequently filed for bankruptcy.
The supreme court cited the bankruptcy judge’s ruling that the attachment was valid, relying on Yumet. The court further stated that the attachment conferred upon Sales the status of a secured creditor. The court holds that a prejudgment attachment constitutes 995 lien under the law of Puerto Rico.
In doing so the court revokes its previous decisions in In re Seijo Custodio, 74 B. Consequently, the court finds that Quadrel’s pre-judgment attachment of debtor’s property, made in accordance with the laws of Puerto Rico, constitutes a valid and perfected lien within the meaning of the Bankruptcy Code. Based on the foregoing, the court finds that Quadrel is a secured creditor under 11 U.
Quadrel, as the party requesting relief from the automatic stay, has met its burden of proof as to debtor’s lack of equity in the attached property, while debtor has submitted nothing more than allegations as to adequate protection of Quadrel’s interest or its equity in the attached property. Attachment of real property is effected by recording the order with the property registry, while an attachment of personal property is effected by depositing the property in court or with a person designated thereby.
A person who lawfully obtains an d.pr.581 order in his favor on real property of the debtor may request that a cautionary notice be entered in the property registry.
The Supreme Court stated “[d]espite the differences we had acknowledged between the entry of the notice of lis pendens. Further, “[t]he protection afforded by a notice of lis pendens is materialized from the moment it is entered, even if its substantive and permanent effects, which modify the main entry, are only attained when it is no longer provisional, and the 995 making the entry receives the full protection of the Registry when he emerges victorious with a final decision from the judicial cause that d.p.g.581 it.
As a cautionary measure to secure the effectiveness of judgment, it reduces the d.p.r.581 ius disponendi. The bankruptcy court incorrectly relied upon Savidge. Although its holding does not directly conflict with superior authority, its applications to these facts runs counter to d.p.r.5581 long line of cases upholding liens in the face of the trustee’s section powers and allowing lienholders to proceed to judgment after bankruptcy.
The Court held that the United States’s tax liens, which were recorded after the creditor’s attachment but before he obtained judgment, were superior to the attachment lien. See also, United States v. Pioneer American Insurance Company, U. White Bear Brewing Company, U.
New Britain, U. In this series of cases the Supreme Court applied the federal common law principle of “first d.p.r.51 time is first in right” to priority disputes between federal tax liens and various nonfederal liens.
The Court established a federal common law rule of “choateness” to determine when the nonfederal liens arose, rather than applying state law. The “choateness doctrine” provided that a lien’s priority was measured from the time it became choate; that is, when the identity of the lienor, the property subject to the lien, and the amount of the lien were established.
Thus, to render his lien choate, the lienor must usually reduce his claim to a judgment. C.p.r.581 this method virtually guaranteed the federal tax lien’s priority in such disputes. In response to the application of these doctrines to disputes involving non-tax federal liens by the lower federal courts, Congress amended the lien provisions of the Internal Revenue Code in to make them 955 consistent with modern commercial practices in the states.
Since then the circuit courts have split on the issue; the First Circuit continues to apply the “choateness” doctrine d.p.r.5881 such disputes. Sherred D.p.581 Associates, F. Section provided “Every person who shall bring an action for the fulfillment of any obligation may obtain an order from the court having cognizance of the suit providing that the proper measures be taken to secure the effectiveness of the judgment as the case may require it, should it be rendered in his favor. Your Notes edit none.
Cited By 8 This case has been cited by these opinions: Southern California Plastics, Inc. Unanue-Casal Goya Foods, Inc.
In Re Carlos A. Rivera, Inc., B.R. –
Unanue View All Citing Opinions. Authorities 24 This opinion cites: City of New Britain, U. Please support our work with d.r.581 donation. United States Bankruptcy Court, D. Medina Torres, Hato Rey, P. Fernando Torrent, San Juan, P. Findings of Fact Quadrel is engaged in the business of leasing trailer tank trucks for the transportation of hazardous chemicals.
Discussion The Bankruptcy Code provides that the filing of a bankruptcy petition operates as a stay of “any act to create, perfect or enforce any lien against property of the estate;” and of “any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case. The Bankruptcy Code further provides that, f.p.r.581 request d.r.581 a party in interest, and after notice and a hearing, the court may grant relief from the automatic stay: