This case is before the court on the objection of the trustee to the allowance of the claim of National City Bank, Claim No. 9, filed herein on September 13, 1996 as a secured claim in the amount of $36,750.

The debtor filed a petition for relief under chapter 7 of the Bankruptcy Code on February 2, 1994. The initial meeting of creditors was held March 1, 1994. The time for filing claims expired on or about May 30, 1994. Obviously the claim cannot be allowed except to the extent it is a secured claim. The bank grounds its secured status on a Non-Recourse Agreement dated February 19, 1993 and a Dealer Financing and Security Agreement dated March 9, 1993.

The manner in which the claim of the bank arose is somewhat unusual.

The debtor was in the business of selling used motor vehicles, primarily vans and trucks. The principals of the company were Walter T. Mitchell, president, and David K. Gaskin, vice-president. Mitchell and his wife, who was secretary/treasurer of the debtor, owned all of the stock of the debtor. Although Ms. Mitchell was treasurer, only Mr. Mitchell and Mr. Gaskin were signatories on the debtor's commercial checking account at National City Bank, Account No. 77402072. Either was authorized to sign checks drawn on the account.

On December 13, 1993 Mr. Mitchell allegedly fired Mr. Gaskin as an employee of the corporation. Shortly thereafter, Mr. Gaskin issued, on the debtor's commercial bank account, check no. 1479 in the amount of $36,750 payable to National City Bank in exchange for an official bank check (no. 61-0892121304), a so-called cashier's check, in the amount of $36,750, payable to himself. The record indicates Mr. Gaskin had loaned the debtor $35,000. He is listed as a creditor of the debtor in that amount. Apparently, Mr. Gaskin sought in this manner to recoup an outstanding loan to the debtor.

Upon learning the debtor's bank account had been depleted in this manner, leaving only $197.88 in the account, Mr. Mitchell initiated steps to have payment stopped on the official check issued to Gaskin. Mitchell was initially successful. Central Bank and Trust Company where Gaskin had negotiated the check was asked to return the official check. Apparently Central Bank and Trust Company did in fact return the check. The official check was returned to National City Bank on December 23, 1993. On that date National City Bank credited the debtor's account in the amount of $36,750.

Between December 23, 1993 and February 2, 1994, the date of bankruptcy, the debtor drew checks on its account. According to the schedules to the bankruptcy petition only $387.71 remained in the debtor's bank account when bankruptcy intervened.

Meanwhile, Gaskin engaged counsel, who after discussion and negotiation convinced the banks that their actions in stopping payment on the official check was unlawful. On February 3, 1994, the day after the debtor's bankruptcy, National City Bank issued a new or replacement official check to Gaskin in the amount of $36,750, Official Check No. 61-089956607.

In March of 1994 National City Bank processed debit memos against the debtor's bank account in the amount of $387.71 and $36,750, which after credit of a deposit of $7.50 and a deduction of a service charge of $197.88, left the debtor's bank account showing a negative balance of $36,947.88. The bank is asserting a claim only for $36,750, the amount of the official check. The court is satisfied the bank has a prepetition claim against the debtor in this amount. However, because the claim was not timely filed it is allowable only to the extent it is a secured claim.

Pursuant to a Dealer Financing and Security Agreement dated March 9, 1993, National City Bank was granted a security interest in the assets of the debtor, including accounts receivable, and perhaps including monies in the debtor's dealer reserve account at the bank. However, the court cannot discern from the proof of claim filed by the bank whether the bank's security interest was perfected. The exact amount in the dealer reserve account is not apparent from the record. The parties were to provide an agreed statement of facts on this issue but have not done so.

In the present state of the record the court finds the trustee's objection to allowance of the claim of National City Bank shall be sustained.

Dated:

By the court -

_____________________________

JOE LEE, CHIEF JUDGE

Copies to:

James D. Lyon, Esq.

James I. Murray, Esq.

Tracey N. Wise, Esq.

U.S. Trustee

In conformity with the memorandum opinion of the court this day entered, IT IS ORDERED that the objection of the trustee to the allowance of the claim of National City Bank, Claim No. 9, filed herein on September 13, 1996, as a secured claim in the amount of $36,750, is SUSTAINED.

Dated:

By the court -

_____________________________

JOE LEE, CHIEF JUDGE

Copies to:

James D. Lyon, Esq.

James I. Murray, Esq.

Tracey N. Wise, Esq.

U.S. Trustee