Adams

This case involves a dispute over the interpretation of the “earmarking” doctrine — a rule that is applied in bankruptcy cases. The question before us is whether the bankruptcy court erred in determining that certain payments were avoidable under 11 U.S.C. § 547 as preferential transfers. We hold that where a third party lends money to.a debtor on the condition that it be used to pay a specific debt, the fact that the debtor requested the loan or that the funds were advanced to the debtor rather than paid directly to the recipient creditor does not render the transfer outside the scope of the earmarking doctrine. The decisions of the bankruptcy court and the district court are reversed.

I. BACKGROUND

Superior Stamp & Coin (“Superior”) operated as a full service auction house specializing in the auction of coins, sports and Hollywood memorabilia, and related goods, until the company filed for bankruptcy in 1994. Appellee Anderson was appointed trustee in 1996.

In 1992, appellant Carolyn Adams and Superior entered into an auction consignment agreement. Under the agreement, Superior agreed to auction Adams’s coin collection and pay Adams the net proceeds within 30 days after…