Lavonia Manufacturing Co. v. Emery Corp.
United States District Court for the Eastern District of Pennsylvania
52 B.R. 944 (1985)
Two days before filing for bankruptcy, Emery Corp. (Emery) (defendant) purchased over $10,000 in yarn from Lavonia Manufacturing Co. (Lavonia) (plaintiff). Emery purchased the yarn on credit. Emery also had security agreements with three other creditors that gave those creditors security interests in Emery’s after-acquired property. This meant that property Emery acquired after the agreement would serve as security for the loans. Because Emery acquired the yarn after entering into the security agreements, the yarn fell under the agreements’ after-acquired property clauses. In the bankruptcy proceeding, the parties disputed whether Lavonia or the other creditors had a superior interest in the yarn. The bankruptcy court held that, based on the fact that Emery was insolvent when it purchased the yarn on credit, Lavonia’s Uniform Commercial Code (UCC) right to reclaim its goods was superior to the other creditors’ security interests in the yarn as Emery’s after-acquired property. Emery appealed, arguing that the other creditors had priority over Lavonia.
Rule of Law
Holding and Reasoning (Cahn, J.)
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