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January 12, 1976


The opinion of the court was delivered by: LUONGO


 In 1969 Leasing Consultants Incorporated (LCI or Bankrupt) purchased an aircraft with money it borrowed from The Philadelphia National Bank (PNB). As part of the transaction LCI leased the aircraft to W. A. Wheatland Associates, Inc. (Wheatland) and assigned the lease and payments thereunder to PNB as collateral for the loan. In October 1970, LCI was adjudicated bankrupt. On August 2, 1973 George Feldman, Trustee in Bankruptcy for LCI, instituted this suit against PNB to recover payments made by Wheatland to PNB after the date when LCI was adjudicated bankrupt. The suit is based on the Trustee's contention that PNB's failure to record the lease and the assignment of lease with the Administrator of the Federal Aviation Agency renders the instruments invalid as to creditors of LCI, and that the Trustee has the power, under applicable provisions of the Bankruptcy Act, to recover for the benefit of the bankrupt estate all payments made subsequent to the adjudication.

 PNB resists the Trustee's claim on several grounds: (1) the claim is barred by the statute of limitations; (2) the Federal Aviation Act does not require the recording of a lease of an aircraft; (3) PNB has a perfected security interest under the Uniform Commercial Code entitling it to the lease payments; and (4) the Trustee's claim is barred by his own actions and omissions.

 The matter was tried to the Court on September 29, 1975. The parties submitted an extensive stipulation of facts and exhibits (Document No. 49). From the evidence submitted at trial and the stipulations of the parties, I make the following


 1. Leasing Consultants Incorporated, now bankrupt, is a New York corporation which engaged in the business of purchasing equipment which it leased to its customers. The customers gained certain tax advantages from such leasing arrangements.

 2. On April 28, 1969, LCI requested The Philadelphia National Bank to finance the purchase of a 1969 Aerostar Aircraft, Model 601, Serial Number 61-0012-33, Registration Number N36DW, for $98,750, less a $20,750 trade-in allowance, so that LCI might lease the Aircraft to W. A. Wheatland Associates, Inc. On May 1, 1969, PNB agreed to finance the purchase at 9 1/2% interest.

 3. On May 1, 1969, LCI and Wheatland executed both a lease (Lease) and a document entitled "Aircraft Schedule," duly referenced to the Lease, covering one (1) 1969 Aerostar, Model 601 Turbo Charged Aircraft, Serial No. 61-0012, Registration No. N36DW. PNB thereafter took possession of the Lease and the Aircraft Schedule. (Stip. No. 1)

 4. The Lease expressly provided that it was assignable without Wheatland's consent and that Wheatland had an absolute obligation to make its payments to any Assignee of LCI's "whether or not this Lease is terminated by operation of law or otherwise," with Wheatland's recourse for any claim being solely against LCI.

 5. The Lease expressly limited Wheatland's interest to that of lessee only, all right, title, and interest being reserved in LCI, so that a true lease was created to afford Wheatland the favorable tax treatment associated therewith.

 6. A separate writing executed by George Rodda, Vice President of LCI, granted Wheatland the option to purchase the aircraft for one dollar if all payments under the lease were made. The purchase option agreement was secret and did not become known to PNB until February 1971 when PNB received a copy of a letter from Richard Miller, President of Wheatland, to Daniel Zimmerman, counsel for George Feldman, LCI's Trustee in Bankruptcy.

 7. By resolution of its Board of Directors, on May 13, 1969, Wheatland authorized the Lease Agreement with LCI in amounts up to $134,000. (Stip. No. 2)

 8. LCI agreed to purchase the Aircraft from Eastern Prop Jet Sales, Inc. (Eastern) pursuant to a Purchase Agreement dated May 20, 1969 for a projected delivery date of June 20, 1969, for the sum of $98,750, less a trade-in allowance of $20,750. (Stip. No. 3)

 9. By check dated June 26, 1969, LCI paid to Eastern the sum of $98,750 for the Aircraft. Eastern executed a Bill of Sale conveying title to the Aircraft to LCI, free of encumbrances, on June 27, 1969. (Stip. No. 4)

 10. On June 27, 1969, Wheatland executed an acknowledgment of receipt of the Aircraft. (Stip. No. 5)

 12. On July 2, 1969, the Bill of Sale for the Aircraft was duly recorded with the Federal Aviation Administration (FAA) showing Eastern as seller, and LCI as purchaser/owner. (Stip. No. 6)

 13. By letter of July 10, 1969, PNB forwarded to LCI a Demand Collateral Note and a Security Agreement for its execution, said documents to embody the finalized terms of the loan: Principal, totalling $93,138.22, plus $31,811.88 in interest to be paid in 70 equal monthly ...

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