In re Elcona Homes Corporation
United States Court of Appeals for the Seventh Circuit
863 F.2d 483 (1988)
Monro Homes (Monro), a dealer for mobile-home manufacturer Elcona Homes Corporation (Elcona) (debtor), sold a home to Markle, who financed it through Green Tree Acceptance (Green Tree) (creditor); following industry-wide practice, Green Tree would pay Elcona the purchase price directly rather than paying Monro for remittance. Elcona filed for bankruptcy after the Markle sale but before Green Tree paid the $22,700 balance, and separately Elcona already owed Green Tree $16,000 from an earlier, different transaction; Green Tree subtracted that $16,000 from what it owed Elcona on the Markle sale and paid only the difference. The bankruptcy court found this improper because the $22,700 was owed to Monro, not Elcona, while the district court reversed, finding mutual obligation based on the parties' established direct-payment practice.
Whether an established industry practice of a financer paying a manufacturer directly, bypassing the dealer, establishes the legal mutual indebtedness required for a bankruptcy setoff, without separate proof the financer was actually legally obligated to pay the manufacturer.